Risk assessment is an integral process for money services businesses. Right now, anti-money laundering concerns are at an all-time high. Because trends in payment fraud are constantly evolving, we wanted to take a moment to discuss some MSB best practices for improving anti-money laundering initiatives.
MSB Best Practices: Assessing Risk
Recently, the American Bankers Association released an insightful guide titled, “Best Practices for US Money Services Businesses.” This guide includes several MSB best practices that speak to businesses in all stages of their anti-money laundering (AML) process.
The first thing it mentions is assessing risks. And the great thing about assessing the risk of money laundering is that these efforts can be implemented regardless of an MSB’s size, structure, or services.
Your main goals for implementing an effective anti-money laundering program should be to prevent your MSB from being leveraged to facilitate money laundering activities and to meet the requirements of the Bank Secrecy Act (BSA).
The first component of making successful risk-based assessments includes identifying the scope and complexity of your AML coverage. You begin this process by identifying the criminal environments that are relevant to your MSB and its operations, as well as the vulnerabilities it has that could be used by criminals to carry out these money laundering attempts.
Studying market threats and specific operations that could be vulnerable will help you create and define an AML roadmap for your MSB.
Methodology is the second focus area for risk assessment. This means retaining qualitative and quantitative information from internal and external sources before you start forming an AML strategy.
Thirdly, take some time to work through governance and follow-up procedures. Who or what entity (like a Board of Directors) is reviewing and approving your AML risk assessments? Do they have recommendations or improvements? And how are you following up on those items?
Lastly, ongoing updates keep all teams and players in the know.
Development and Implementation Tips
Your anti-money laundering program will include the top MSB best practices for development and implementation.
Proper staffing is a must. You can’t mitigate risk if you don’t have the employee power to stay on top of alerts, changes, and strategy improvements.
True and tested internal controls are also going to be a star component of a successful AML program. How are your employees and professional partners working through issues? What are they doing to create positive risk mitigation? Are the governing bodies of these programs opening substantial lines of communication with those who carry out the line-item work?
And don’t forget about training and independent testing. Investing time and resources into proper training and testing tools can create a lot of forward momentum on projects like this. When mitigating risk, anything you do on the front end must be of high quality, otherwise, you’ll pay for it later in the time and money it costs you when a breach or money laundering scheme is uncovered after time has passed.
Know Who You Are Transacting With
MSBs often have one or both of the following relationship types:
- Transaction-based relationships – include in-person transactions like cash-based money transfers, and non-in-person transactions like transfers and payments funded by bank accounts. It also includes occasional transactions like intermittent check cashing, and ongoing partnerships like reloadable pre-paid asset access
- Account-based relationships – include in-person transactions like using cash to reload prepaid assets, and non-in-person transactions like transfers to and from virtual wallets (which can also be considered occasional transactions or ongoing relationships depending on the circumstance).
To carry out AML and MSB best practices, you must know your customers and the entities or individuals you are transacting with. In addition to facilitating payments, MSBs should be collecting information that addresses fraud, screens customers for unusual activity, and ensures customer protection.
MSBs should also determine where and how they provide these transactions. Are they Account-based? Transaction-based? A bit of both? Knowing where and how your consumers are using your services can also help you spot anomalies and fraudulent trends.
Anti-Money Laundering Strategy: Prevent, Detect, Report
When your MSB is creating a top-tier BSA/AML program, it should be focused on doing three central tasks: preventing, detecting, and reporting money laundering incidents.
Think of this formula as a before, during, and after setup. If an ounce of prevention is worth a pound of cure, you should be heavily weighting your assets towards prevention – you can’t very well say you are running anti-money laundering operations if you are seeing an influx of customers taking advantage of your services for their money laundering purposes. The higher your defenses, the harder it is for them to be breached or exploited.
But we live in an imperfect world and catching everything early isn’t possible. That’s where the detection and reporting come in. Start by creating channels of communication between your MSB and essential external parties like local law enforcement and regulatory agencies, as well as other financial institutions that may be affected. Keeping communication a priority can help cut off money laundering attempts before they become more difficult to identify and shut down.
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Money services businesses include transactional businesses like check cashers, prepaid card providers, foreign currency dealers, money transmitters, and money order and traveler’s check issuers. Because of the diverse nature of these businesses, they need payment processing software that can keep up.
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