1

Progress for the Industry: Progress for the Industry:

Ideas to foster a better marketplace Ideas to foster a better marketplace

Presented by Ronald Schwartzman on behalf of UniTeller to the MTRA

November 15, 2006

2

Introduction Introduction From the industry perspective:

How to improve the marketplace for the industry, remitters and the regulators

Areas for improvement: Change the MSB label to remove the stigma Urge FinCEN to revise categories

– Lack of FinCEN guidance accepts the status quo Lack of access to banks

- Most serious repercussions on smaller remittance companies

- Increased costs for larger remittance companies causing shifts in resource allocation

3

Areas to foster positive changeAreas to foster positive change What is the best way to further the purpose of BSAWhat is the best way to further the purpose of BSA ? ?

Common threads damaging the industry – High Risk Label from the federal banking authorities– Lack of recognition of sophistication of technology of remittance companies– Maintaining a bank account– Duplication of work with various state agencies– Image aired in the media

Effects on the marketplace and the consumer resulting from these issues

4

Changing the high risk labelChanging the high risk label Broad and diverse variety of MSB’s does not

assist the regulators or the consumers– Licensed Remittance Companies are heavily regulated

and should be so recognized as LRC’s MTRA Pres.’s statement Wal-Mart vs. LRC vs. Mom-and-Pop store Stored value card sellers Differences in transactions processed and risks Dollar limits Technological sophistication and aggregation UNLICENSED REMITTERS Industry reputation

5

Correct the label: LRC’s as the legitimate

remittersRecognize and publicize the rigors in both

the application, renewal and examination processes that LRC’s continuously undergo

Compare the regulatory record of the banks vs. the LRC’s where substantial money laundering has been found

OFAC

Training

FINCEN

ITEducation

C.O.

ID’s

KYCBSA

6

Shift the focus to the strengths Shift the focus to the strengths of the industry of the industry The elements that deserve more attention from the public and federal and state

policy makers– Review of each transaction by an LRC vs. review by banks primarily of account levels– Bonding and net worth requirements – Limitations on agent’s processing abilities– Strength of agent selection process and oversight– Technological sophistication– Transaction aggregation policies– Effects of violations: Fines and Penalties for banks vs. revocation of license for LRC’s

7

Insurance and Surety BondsInsurance and Surety Bonds Minimums

– Barrier to entry for small companies– Not in proportion to transactions processed

Maximums– Benefit to largest LRC’s that pay less per transaction for the

cost of the bond– Maximum not tied to a specific credit risk evaluation– Assumes LRC’s carrying larger volumes are more creditworthy

Considerations- Review bond amount on total picture (credit evaluation and transaction totals)- Raise or lower bond based on LRC’s credit rating

8

Access to BanksAccess to Banks Without bank access, an LRC cannot operate De facto regulation by banks Regulatory and business pressures on banks lead to closing of accounts Capacity of banks to evaluate LRC’s

- LRC’s provide AML programs, state license(s)- LRC’s provide independent reviews

Differentiation among MSB’s- Brokerage firm vs. jeweler vs. car dealer- No denial of service despite MSB status or

money laundering risk- Costly monthly fees due to MSB status

egular communications with Agent

9

Use of Regulatory ResourcesUse of Regulatory Resources

Increasing Demands on State Banking Departments – Cooperative efforts among states– Multi-state renewals– Cooperative examinations– More resources applied against unlicensed

remittance companies

10

Consolidation of industryConsolidation of industry

Smaller companies disappearing Difficulty maintaining bank access Technological demands Higher minimum bonds and net worth requirements Result:

Less competitionCosts to consumers may increaseLess reporting of remittance transactions and more remittances go through

unlicensed channels

11

ConclusionsConclusions

Improvements to benefit the industry, remitters and the regulators:

Urge FinCEN to separate LRC’s as a category Protect banks from responsibility for LRC accounts

and stop bank de facto regulation of the industry Beneficial treatment for partnerships between

banks and LRC’s Improve cooperation among states in their

regulation and examination of LRC’s Media recognition of strengths of LRC’s and

critical importance to BSA implementation

12