Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
Federal Reserve Web Sites
Other Bank Regulatory Sites
March 14, 2012
How do new faces affect risks in money transfer business?
According to a February 21 American Banker article, Facebook has officially entered into the money transfer business. Facebook reported in its S-1 filing last month that it generated about $555 million dollars in 2010 (or 15 percent of its revenue that year) from payments, and that it holds money transmitter licenses in 15 states. Facebook credits are a digital currency that companies use on the site's online applications and games such as Farmville.
Facebook is not the only nonbank business entering the money transmittal business, though it certainly may be one of the more prominent. But as money transmitters are playing an increasingly larger role in our nation's payments system, now may be the time to take stock of the risk environment and continue our discussion on an appropriate strategy for risk governance.
FinCEN SAR filings on the rise for money transfer services
According to FinCEN's May 2011 report The SAR Activity Review: By the Numbers, depository institutions have a greater potential of exposure to money laundering crimes than do nondepository institutions. Nondepository institutions include money service businesses (MSBs), securities and insurance firms, and even casinos. You can see from the following table that over the last five years, the number of depository institution SARs decreased as of December 2010, while nondepository institution SARs have increased.
The report's findings for MSBs in particular are startling. It says, for example, that “in 2010, suspicious activity filings by the MSB industry hit an all time high with 596,494 SARs filed in 2010, up 12% from the prior year and over 18,000 more forms submitted than the previous high in 2007.” In fact, money transfer SAR filings in 2010 comprised 70 percent of all financial services filings by MSBs. SARs by MSBs listing money transfers increased 23 percent from 2009, while money order SARs fell 3 percent for the same period.
Under the radar: When MSBs fail to file
When MSBs were subject to enforcement actions in 2011, their primary infraction often involved failure to register with FinCEN. In addition, according to FinCEN's 2011 Annual Report, filing failures were often accompanied by other legal violations, such as failing to file currency transaction reports and currency structuring.
To help industry partners, regulators, and law enforcement monitor MSBs, FinCEN recently announced the launch of a new MSB registration website. FinCEN updates the database weekly.
As nonbank companies, including social media firms like Facebook, enter the payments business, it will be critical to keep an eye on small innovative and possibly unlicensed start-up money transmitters.
By Cynthia Merritt, assistant director of the Retail Payments Risk Forum
TrackBack URL for this entry:
Listed below are links to blogs that reference How do new faces affect risks in money transfer business?:
- Not Seeing a Tree for the Forest
- Fed Survey Shows Mobile Banking on Rise in Southeast
- Leaving a Cybersecurity Legacy
- What Can Parenting Teach Us about Data Security?
- Safely Motoring the Payments Highway
- Balancing Security and Friction
- Squeezing the Fraud Balloon
- Who's to Stand in for Mom?
- Security at the ATM: We Have Some Educating to Do
- Payments Stakeholders: Can't We All Just Work Together?
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- account takeovers
- ATM fraud
- bank supervision
- banks and banking
- card networks
- check fraud
- consumer fraud
- consumer protection
- cross-border wires
- data security
- debit cards
- emerging payments
- financial services
- identity theft
- law enforcement
- mobile banking
- mobile money transfer
- mobile network operator (MNO)
- mobile payments
- money laundering
- money services business (MSB)
- online banking fraud
- payments risk
- payments study
- payments systems
- phone fraud
- remotely created checks
- risk management
- Section 1073
- social networks
- third-party service provider
- trusted service manager
- Unfair and Deceptive Acts and Practices (UDAP)
- wire transfer fraud
- workplace fraud