ECSH51025 - Introduction to money service businesses

When did money service businesses (MSBs) come into scope?

MSBs were first brought within the scope of anti-money laundering regulation by The Money Laundering Regulations 2001.These have since been replaced by subsequent regulations with The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), as amended, which are currently in force. 

MLR 2017 sets out what relevant businesses such as MSBs must do to identify the risk of their business being used for money laundering, terrorist financing or proliferation financing purposes and manage and mitigate those risks.

 

Definition of an MSB

An MSB is defined in regulation 3 MLR 2017 as:

An undertaking which by way of business operates a currency exchange office, transmits money (or any representation of monetary value) by any means or cashes cheques which are made payable to customers.

 

MSB Subsectors

Currency Exchange Office – undertaking the activity of exchanging one currency for another different currency by way of business.  Examples include:

  • A traditional bureau de change through which a customer purchases their holiday money, for example exchanging sterling GBP to Dominican pesos.
  • A person or business which provides bulk cash/currencies to a customer (usually a business) on order which is then either picked up by the customer or delivered to them (potentially by a cash and valuable in transit (CVIT) company like G4S or Securicor).
  • A person or business which carries out foreign exchange involving the digital trade of one currency to another different currency utilising the FOREX/FX markets and the different currency subsequently being returned to its customer.

Money Transmission - transmitting money or any representation of monetary value by any means (money remittance).  MSBs that conduct money remittance are also required to be authorised by the Financial Conduct Authority (FCA) under the Payment Service Regulations (PSRs).  See ECSH51225. 

Cheque Cashing - cashes cheques payable to customers (third party cheque cashing). 

 

Why are MSBs Included in MLR 2017

Money laundering can take many forms and the different MSBs subsectors can be used to launder money in different ways, for example:

  • Currency exchange offices can be exploited to change small denomination notes into large denominations in another currency to enable easier and cheaper handling of large quantities of cash which is the proceeds of crime or cash obtained from illegal activity.
  • Money transmission (including informal value transfer system (IVTS) such as hawala) can involve using an MSB to transfer cash which is the proceeds of crime to an overseas jurisdiction, such as by persons not allowed to work in the UK sending the proceeds of illegal working to other countries, or by organised crime gangs laundering the proceeds of the supply of illegal drugs.
  • Third party cheque cashing (where a business cashes a cheque made out to a customer). For example: scrap metal dealers are required to not pay for scrap in cash, so cheques are often used. The customer will then take the cheque to a cheque casher as they will often wish to utilise the proceeds of the sale in cash. Another example is employers with a no cash policy paying their employees by cheque. If the employee is unbanked, they will need to take the cheque to a cheque casher to realise the value in cash.