Money service businesses or MTOs (Money Transfer Operators) like Western Union may cease to exist.

The sudden notice by Fidelity Bank & Trust International Limited (FBT) here in the Cayman Islands to say they had already ceased to offer Western Union, Money Transfer Services at its branches and sub-agent locations was quite frankly disgraceful. Not that they were ceasing to offer the service but the notice, No warning whatsoever to the general public. It is not as if the directors of the bank suddenly made that decision last Friday at the immediate hour of 5PM. They must have decided they were going to do this some time ago but the complete disdain banks have for their customers now prompted them to wait for the weekend and not to waste a precious thought of the inconvenience and damage their decision has caused.

“Fidelity Bank sincerely apologizes for any inconvenience caused to its customers as a result of this closure.” – Really?

You see, the vast majority of the Western Union customers who regularly use this service as a lifeline to their families in another country are the lower wage earners. They are the faceless people and the business they generate now is not worth the bother. The tightening regulations from governments, especially the US has seen to that. Just a few ago MTOs were big business for the banks.

Businesses like Western Union are being surprised when they receive a letter from their bank saying “Access to Banking – DENIED”.

In USA, if you declare yourself as an MTO, you literally cannot open a bank account (unless you have some deep pockets backing you up).

The reason for such account closures vary, but it all boils down to risk. Bank inherently see money transfer companies as risky and doing business with companies engaged in money transmission potentially exposes the bank towards risk over which they have very little control.

In an article published on the Faisal Khan website earlier this year the writer says:

“In the United States, the whole closure of MSB accounts started with a phenomenon known as Operation Choke Point.”

Details of the Operation list Money Transfer Networks as one of the banned accounts.

“The quest for finding a bank in the US for money services business, has now literally become a business. Going price for a guaranteed introduction for a money services business now ranges from US$ 5,000 to US$ 25,000 (subject to prior due diligence).

“The problem is not only in the US. It has extended its tentacles to Australia where an uproar was caused by WestPac (one of the leading Australian Banks) that started the process of account closures for all money transfer companies. This was quickly followed suit by other banks. The situation became so dire, that overnight, the money transfer industry was in a spin. A suit was filed in the court to extend the date, but that expired on 30th of March this year (2015). Even giants like Travelex have had their accounts closed. The mid to small MTOs are essentially out of business.

“A lot many MTOs have reverted to Hawala or framing the transaction by other commercial means (trading, import/export, services), etc.

“When regulatory pressures close down banking facilities for MTOs, money goes underground.

“The industry darling term for this is De-Risking. Which does/doesn’t make sense, depending how and where you look. Banks cite the reason that they do not have enough visibility into the transaction and hence cannot be party to it. MTOs counter-argue that banks do not upgrade their systems to allow APIs to connect so that the much needed visibility to banks can be provided.

“In some instances like Somalia, where the entire nation depends on Remittances, the situation is more complex. The beneficiary who claims the end credit of the remittance cannot be identified with certainty. Because even the sending MTO cannot guarantee the person cashing out the money in Somalia is who they claim to be, the risk, goes back to the transaction originator, which includes the MTOs and the Banks. Consult Hyperion did a study on this for the British Government on how to solve this complex problem and what are some of the alternatives.

The closure of bank accounts for MSBs in the United States has reached such a level, that FinCEN actually issued a notice, regarding the non-cooperative attitude of banks towards MSBs.

Department of Homeland Security also has a huge say in this matter. Notices have been issued via FinCEN, via Consular Services and by other LEAs to banks in other countries, asking them to shut down bank accounts of certain MTOs. Financial institutions that receive such notices comply, without question. Who would want to fight the US Government / Banking system, for a couple of measly money transfer accounts. Answer as you might have guessed it, no one!

The only way out seems to be deep pockets. With enough money, you can counter-balance the financial risk and also provide essentially free funds to the bank as deposits, whilst at the same time, implementing a very thorough AML / BSA / KYC compliance program. One that exceeds even the bank’s most stringent requirements.”

“It would be interesting to see how all this plays out with crypto-currencies. If access to banking becomes a hurdle, my bet is money will definitely go underground and more innovative ways would be conjured up to do remittances (read: from grey to downright illegal).

“The federal regulators in the receiving countries can’t do much. How does a dwarf challenge the US Goliath in the form of FinCEN, et. al. or UK’s FCA? The sad reality is: They cannot!

“The MTOs and MSBs are fighting back. It remains to be seen, how much stamina is left. For the closures have been financially painful.”

To read the whole article go to: http://faisalkhan.com/2015/05/04/the-sandstorm-that-is-blanketing-the-operations-of-money-transfer-companies/

Our own government is not happy with the situation and have issued a release stating they are, “in discussions regarding money-services businesses.”

“The Ministry of Financial Services, the Cayman Islands Monetary Authority, representatives of the money-services businesses and members of the local banking industry are discussing the recent business decisions concerning remittance services,” they said.
‘While any commercial decisions regarding money-services businesses are a matter for the businesses and the banks to make themselves, Government and CIMA are arranging these discussions in order to address concerns on both sides, with the aim of ensuring that options remain open to consumers’, Minister Panton said. ‘We are encouraged by the level of collaborative engagement so far, and that all sides are working to ensure minimal disruption to remittance services locally’.”

See also this:

The US Office of the Comptroller of the Currency (OCC) is issuing the “Statement on Risk Management Associated With Money Services Businesses” to provide clarification to national banks, federal savings associations, and federal branches and agencies of foreign banks (collectively, banks) on the agency’s supervisory expectations with regard to offering banking services to money services businesses (MSB).
Note for Community Banks
The principles contained in the statement below are applicable to all OCC-supervised banks.
Highlights
As detailed in the statement below,
• the OCC does not direct banks to open, close, or maintain individual accounts, nor does the agency encourage banks to engage in the termination of entire categories of customers without regard to the risks presented by an individual customer or the bank’s ability to manage the risk.
• MSBs present varying degrees of risk.
• banks are expected to assess the risks posed by an individual MSB customer on a case-by-case basis and to implement controls to manage the relationship commensurate with the risks associated with each customer.
Statement on the Risk Management Associated With Money Services Businesses
In carrying out the agency’s mission, the OCC requires OCC-supervised banks to manage their risks appropriately, to meet the needs of their communities, to comply with laws and regulations, and to provide fair access to financial services and fair treatment of their customers. As a general matter, the OCC does not direct banks to open, close, or maintain individual accounts, nor does the agency encourage banks to engage in the termination of entire categories of customer accounts without regard to the risks presented by an individual customer or the bank’s ability to manage the risk.
The OCC has always taken the position that banks must apply the requirements of the Bank Secrecy Act based on their own assessment of risk for all customer accounts. A bank’s risk assessment should take into account the products and services it offers the customer as well as the customer’s individual circumstances. The safety and soundness of an institution can be threatened when a bank lacks appropriate risk management systems and controls for the products or activities it provides or the customers it serves. Moreover, the failure to implement and maintain such controls can provide money launderers, fraudsters, terrorists, and other criminals with access to our financial system.
MSBs present varying degrees of risk to an institution. Not all MSBs should be considered high risk. In keeping with the OCC’s mission and commitment to ensuring all customers have fair access to financial services, the agency expects OCC-regulated banks to assess the risks posed by each MSB customer on a case-by-case basis and to implement appropriate controls to manage the relationship commensurate with the risks associated with each customer.
END

As Roy Orbison said, “It’s over. It’s over! It’s over!!”