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December 12, 2011 • Issue 11:12:01

Longevity, inclusion sought in new AML rules

sellingprepaidIn an attempt to clarify the new, complicated anti-money laundering regulations imposed on the prepaid card industry, the Financial Crimes Enforcement Network (FinCEN) presented a webinar that detailed the compliance burdens for issuers and sellers of prepaid cards.

The final rule requires prepaid card businesses to comply with Bank Secrecy Act (BSA) regulations for reporting prepaid card activity to FinCEN when certain usage thresholds are crossed. The rule was published in July 2011 and went into effect the following September, but prepaid card businesses have been given until March 31, 2012, to comply with some of the mandates.

Koko Ives, Deputy Assistant Director, Office of Regulatory Policy at FinCEN, said the bureau issued a "stored-value" rule in 1999. "However, over time the industry changed so significantly, as did the money laundering risks, that it was really necessary to reevaluate our regulatory structure and even the terminology," she said.

FinCEN replaced "stored-value" with the broader term "prepaid access." "We realized the need to make sure that the rule would have longevity," Ives said. "We needed a language and concepts that were going to be sufficiently elastic to encompass new innovations so the rule would not be obsolete as soon as we published it."

By prepaid access, FinCEN means any tangible or intangible device that provides access to prepaid funds: a mag-stripe or contactless, near field communication chip card; a payment fob; a smart phone or other electronic device; or a virtual card accessed online via a code or password.

Principal MSB versus agent MSB

Both providers and sellers of prepaid access are required to maintain certain information that can be made available to law enforcement if and when it is needed, said Cindy Baltierra of FinCEN's Office of Regulatory Policy. Under the framework, a provider is considered the "principal MSB" (money services business) and the seller the "agent MSB." Only the principle MSB is required to register as an MSB with FinCEN using form 107 (available on the bureau's website).

Baltierra said the principal MSB is usually engaged in program management: setting terms and conditions, load limits, and fees, as well as selecting partners for processing and distribution of prepaid cards. An agent MSB is defined as an entity that meets one or the other following criteria:

    1. Sells prepaid access to consumers before customer identification is verified or

    2. Sells prepaid access (including closed-loop gift cards) in the amount of $10,000 or more per person, per day.

What's in, what's out

Lee Davis, another staffer at FinCEN's Office of Regulatory Policy, addressed what programs need to comply with concerning the regulations. Closed-loop gift card programs for which the daily, per device load equals or surpasses $2,000 must be in compliance; for open-loop programs, a load of $1,000 and above triggers rule inclusion. The types of cards excluded from the rule include government benefit cards, flexible spending account cards tied to health care plans and employer-funded payroll cards, Lee said.

He added the main restriction to the exclusions is that the products must be limited to providing funds and services tied to the cards' central functions; if the products offer such ancillary features as international money transfers, person-to-person money transfers and are funded from "non-depository sources," the exclusions do not apply.

Additionally, banks are not considered MSBs under the rule, although such financial institutions (FIs) do provide and sell prepaid cards, Lee said. But he noted. "The rule does not relieve banks of any of their existing BSA obligations, including those with respect to prepaid programs to which they are involved."

Lee outlined MSBs' reporting responsibilities. Both providers and sellers must:

  • Obtain and identify cardholder information, including dates of birth, addresses and Social Security (or other identification) numbers

  • Keep transactional records for five years (for providers: measured from the date of last use of cards, for sellers: five years after the sale of the cards)

Lee said transactional records are defined as "records generated in the ordinary course of business needed to reconstruct prepaid access activation, load, reload, purchases, withdrawals, transfers or other prepaid related transactions."

The webinar can be accessed at www.fincen.gov/whatsnew/html/20111102.html. end of article

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