Financial Crime World

MSB Regulation: A Balancing Act Between Compliance and Financial Inclusion

A new report by the Financial Action Task Force (FATF) highlights the potential risks of restricting business relationships with Money Services Businesses (MSBs) without proper risk assessment and mitigation measures. This restriction could lead to increased financial exclusion, as customers may be diverted towards riskier services or channels that are not properly regulated.

What is an MSB?

According to the FATF report, MSBs refer to financial services that involve the acceptance of cash, cheques, or other monetary instruments and the payment of a corresponding sum in cash or other form to a beneficiary. These transactions can involve multiple intermediaries and may include new payment methods.

MSB Regulation in Dominica

In Dominica, the Money Services Business Act, 2010 defines an MSB as any business that provides transmission of money or monetary value, cheque cashing, currency exchange, issuance of money orders or traveller’s cheques, payday advances, or other services specified by the Minister. MSBs must be licensed by the Financial Services Unit (FSU) and comply with certain requirements.

Compliance Requirements

The report emphasizes the importance of performing due diligence on customers and implementing effective risk management systems to prevent money laundering and terrorist financing. MSBs are required to:

  • Determine the true identity of customers
  • Recognize and report suspicious transactions
  • Keep records for a prescribed period
  • Establish internal controls
  • Train key staff

Consequences of Non-Compliance

Failure to comply with these requirements can have serious consequences, including criminal prosecution for money laundering and other financial crimes. The report warns that negligence in vigilance can put employees at risk of being involved in criminal activity, while MSBs and their directors may face criminal liability if they commit any of the offences under the Proceeds of Crime Act.

The Balance Between Compliance and Financial Inclusion

The restriction of business relationships with MSBs without proper risk assessment and mitigation measures could have far-reaching consequences for financial inclusion. The report urges regulatory authorities to strike a balance between ensuring compliance with anti-money laundering regulations and promoting financial inclusion by providing access to safe and regulated financial services.

Key Takeaways

  • Restricting business relationships with MSBs without proper risk assessment and mitigation measures can increase financial exclusion.
  • MSBs must be licensed by the FSU and comply with certain requirements, including performing due diligence on customers and implementing effective risk management systems.
  • Failure to comply with these requirements can have serious consequences, including criminal prosecution for money laundering and other financial crimes.
  • Regulatory authorities must strike a balance between ensuring compliance with anti-money laundering regulations and promoting financial inclusion.