Financial criminals looking to move funds across state or national borders are increasingly targeting money service businesses or MSBs. As a result, regulators impose more stringent rules to prevent crimes and fraud. Financial institutions do their best to ensure full compliance. Yet, onboarding difficulties and error-prone manual identification and verification processes keep the challenge up.

Money service businesses need an affordable and effective solution to comply with the regulations and avoid hefty sanctions. The HyperVerge identity verification solution offers MSBs an ideal solution for anti-money laundering (AML) compliance. Powered by artificial intelligence (AI), this futuristic solution detects everything from eyewear to face masks. It ensures smooth and assured customer onboarding.

This article addresses all your curiosities regarding Money Service Business regulations. Read on to learn about MSBs, the rules, and the challenges for compliance.

Understanding money service business

A money service business is any organization or individual dealing in money conversion and transmission. MSBs include post offices, currency dealers, mobile payment applications, etc.

MSBs are different from full-fledged banks. MSBs offer services like foreign currency exchange, payment processing, fund transfer, short-term loans, etc.

With the evolution of financial services, MSB includes many exclusive rising financial services, focussing on electronic money. The list contains online marketspace, cryptocurrency, crowdfunding, and others.

MSBs differ from conventional banks and offer varied services. But they must comply with similar regulations. These rules define how MBSs do business, whether for cash conversion, fund transfer, or any other service.

KYC and AML: Common threads of the MSB market

The regulations that MSBs must comply with are in the control of their registration states. There can be some variations in the rules, but some threads are the same everywhere. For instance, adherence to AML and “know your customer” (KYC) norms.

Every money service business must thoroughly comply with the AML rules. They must follow stringent policies and proactive procedures to curb money laundering and other financial crimes.

Some of the prerequisites are:

  • A well-documented AML policy
  • A dedicated AML officer to conduct and lead regular audits
  • Training programs to keep the workforce abreast with the regulations
  • Procedures for continuous review of the transactions and customers for early detection and timely action on malicious activities

One of the central pillars of AML compliance is KYC. The KYC regulations ensure that MSBs only onboard verified genuine customers. MSBs must provide due diligence when they verify the identity of a potential customer. MSBs must also conduct KYC checks for every change in customer information and keep it up to date.

Key challenges in the money service business market

MSBs are redefining the landscape of financial services worldwide. They enable many legitimate financial services, such as cross-border purchases, inter-jurisdiction businesses, and international fund transfers. 

Many money service businesses also provide innovative services like crypto transactions. However, it is hard to justify these companies’ relevance and usefulness in short of appropriate regulations and laws. It can lead to several grave crimes, such as:

  • Money laundering to clean up illegal funds
  • Terror funding
  • Frauds that rob individuals and companies and can lead to bankruptcy

Battling these crimes is a massive challenge for MSBs. While regulations provide some respite, they come with some other predicaments. Common issues are:

  • Friction in customer onboarding due to stringent KYC/AML
  • The rising cost of AML compliance
  • Error-prone manual procedures

MSB for organizations in the United States

The Financial Crimes Enforcement Network (FinCEN) specifies the definitions and requirements for every MSB in the US. It includes companies offering money transfers, currency exchange, check-cashing, and other similar services.

These companies are subject to the Bank Secrecy Act (BSA) reviews by Internal Revenue Service (IRS). All MSBs must comply with state and federal laws to avoid hefty penalties.

Money service businesses must have processes in place to filter transactions. They must report transactions that collectively amount higher than $10,000 for one individual in one business day. Companies must also have individuals or teams to monitor transactions and ensure they are abreast with the regulations.

Inputs for effective money service business compliance

The International Financial Action Task Force (FATF) defines a risk-based approach for money service businesses to combat financial crimes. It aims to curb terror funding and money laundering. To this end, it helps companies understand their AML risks and build solid plans to counter them.

The risk-based approach guides companies to identify and assess their risks. They can then plan to avoid these risks and mitigate their impact. Every MSB is unique in its operations. For that reason, a generic approach is not the right solution. However, they can follow the MSB best practices to ensure robust and secure compliance.

Partnering with a trusted FinTech can help MSBs implement KYC and AML. HyperVerge Identify Verification Solution works for all ages, races, and genders. It enables seamless customer onboarding, allows custom AI-based checks, and ensures that the people transacting with your business are legit and verified.


What services are considered MSBs?

The MSB is an umbrella term that includes many services. Some standard services are currency exchange, cashing checks, short-term loans, online marketplaces, crowdfunding, cryptocurrency, and more. It is important to note that MSBs are not banks.

Why are MSBs considered high-risk businesses?

Most MSBs offer high-volume transactions across borders. The magnitude and nature of transactions open several risks. They are the illicit use of cash, money laundering, terror funding, exploitation of weak assessment and control procedures, criminal group infiltration, and employee corruption.

How are money service businesses regulated?

The FinCEN defines and specifies compliance requirements for all MSBs. These businesses must adhere to the Bank Secrecy Act. Reviews of registered MSBs by the Internal Revenue Service assess compliance. Failure can result in big penalties.