Check Cashing Regulation

October 17, 2016

Check cashing regulation has expanded and evolved to meet the compliance requirements and perceived risk of the check cashing industry in the 21st century. Check cashers are grouped with money service businesses for the purpose of compliance and regulation. The MSB industry as a whole faces heavy guidelines and banking regulation from both Federal and State officials.

Check Cashing Regulation

Check cashing regulation for MSBs is issued on both the state and Federal level. Check cashers are required to adhere to all regulations and engage in independent audits of their compliance efforts on an annual basis.
A money service business is defined as a financial institution involved with one or more of the following entities:

  • Check casher
  • Foreign currency dealer
  • Agent
  • Money transmitter
  • Provider and seller of prepaid cards
  • Issuer, seller, or redeemer of traveler’s checks
  • Issuer, seller, or redeemer of money order

The overarching goal of each regulation is to prevent financial crimes such as tax fraud, terrorist funding, money laundering, and illegal gambling. For the purpose of this article, we will focus on the regulation that most directly affects check cashers and check cashing banks.

Who Enforces Check Cashing Regulation?

MSB banking and check cashing regulation is issued and enforced by :

  • Financial Crimes Enforcement Network (FinCEN)
  • Internal Revenue Service (IRS)
  • State Banking Department and Regulators

These governing bodies develop and issue new regulation to meet changing threats to financial security and integrity on a local, national, and global scale. Once regulations are issued, these three bodies work together to enforce guidelines and laws. MSB friendly banks and check cashers found to be operating in violation of any rules are identified, charged, and appropriately punished.
The Financial Crimes Enforcement Network (FinCEN) is the key enforcer of check cashing regulation. FinCEN works on the Federal level to prevent, detect, and punish financial crimes of all varieties. For money service businesses, FinCEN enforces the Bank Secrecy Act and oversees MSB registration and other core regulatory duties.

The Bank Secrecy Act & Check Cashers

The Bank Secrecy Act of 1970 still plays an essential role in check cashing regulation today. The BSA requires financial institutions in the United States to cooperate with and report suspected financial crimes to appropriate U.S. government agencies. The purpose of the BSA is to prevent and detect money laundering (more on that under AML!).
Under the BSA, financial institutions like MSBs and check cashers are required to report suspicious activity (see SARs!), keep records of cash purchases of negotiable instruments, and file reports of these cash purchases of negotiable instruments that surpass $10,000/day. We will dive into the specifics of these reports in the next section.
Title III of the USA Patriot Act provided provisions for the BSA. The USA Patriot Act was passed by Congress in response to the September 11, 2001 terrorist attacks. Title III is both a provision in the USA Patriot Act and an act in its own right passed by Congress. Title III is aimed at the prevention, detection, and prosecution of international financial crimes, specifically terrorist financing.
The provisions of Title III are divided into three subtitles:

  1. International counter money laundering and related measures
  2. Bank Secrecy Act improvements and related improvements
  3. Currency crimes and protections

Through Subtitle B, Title III aims to make it harder for money launderers to operate and easier for law enforcement and regulators to work together to police money laundering. Essentially, Subtitle B helps agencies communicate and prosecute money launderers. At the same time, it closes loopholes and increases punishment for criminals.

Check Cashing Regulation & Reporting Under the BSA

The Bank Secrecy Act permeates check cashing regulation at every turn. The BSA requires MSBs and check cashers to file specific kinds of reports. Additionally, the BSA is focused on anti-money laundering regulation. The following sections break down AML, reporting, and other core BSA guidelines.

Anti-Money Laundering (AML)

The BSA is often referred to as Anti-Money Laundering (AML) regulation.

Suspicious Activity Reporting (SARs)

A suspicious activity report is exactly what it sounds like, a report about suspicious activity. Financial institutions are called to report all suspicious activities within 30 days to FinCEN. These activities include potential abuse committed by an employee, violations of laws including the Bank Secrecy Act, computer intrusion, or when a financial institution knows that a customer is operating as an unlicensed money services business.
SARs include detailed information about transactions that are or appear to be suspicious. The goal of SAR filings is to help the government identify individuals, groups and organizations involved in fraud, terrorist financing, money laundering, and other crimes. FinCEN uses SARs to help law enforcement with money laundering cases and to identify emerging trends of financial crime.
In accordance with the BSA, money service businesses and check cashers must maintain records of SARs for a period of five years from the date of filing. A search on the FinCEN website reveals that 76,740 SARs reports have been filed by money service businesses in 2016 alone (as of 10/14/16). Of these reports, 75% are categorized as either “Suspicious Concerning the Source of Funds” or “Suspicious EFT/Wire Transfers.”

Currency  Transaction Report (CTR)

The BSA requires that MSBs and check cashers report all cash transactions over $10,000 in a single day. This limit can be hit with one transaction or spread out over numerous transactions.
The report is sent directly to FinCEN in accordance with BSA check cashing regulation. The purpose of a CTR is to help prevent money laundering.

Agent List and Record Retention

In accordance with the BSA, FinCEN requires registered and regulated money service businesses to prepare and maintain a comprehensive list of its agents. The IRS also receives documentation of the list to uphold check cashing regulation. Agents are the entities that check cashers have authorized to sell or distribute its money service business services. These services include money orders, travelers’ checks, money transmission, check cashing, currency exchange and currency dealing.

Know Your Customer (KYC)

Know Your Customer was actually mandated by the USA Patriot Act in 2001. KYC encompasses the process of a check casher identifying and then verifying the identity of its customers. KYC also refers to the specific bank regulation under the USA Patriot Act which governs these processes.
KYC is intended to prevent check cashers and money service businesses from being used by criminals for money laundering activities. Banks rely on KYC to identify and understand their customers (and their customers’ customers) and their financial activities. KYC is part of a strong risk and MSB compliance strategy.

NCC’s Commitment to Check Cashing Compliance

Regulations authored and enforced by FinCEN, the IRS, and state agencies are always evolving. National Check and Currency provides MSB compliance and check cashing regulation expertise to each of its clients. In addition, NCC provides real, friendly MSB bank accounts through check cashing banks and tailored supported MSB services to support the entire check cashing process.
Find out more and apply for an account today via phone or submit a form on our website!

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