Money services businesses (MSB)

A Money Services Business is any non-bank financial company that handles money transmission, currency exchange, check cashing, money orders, traveler's checks, or prepaid access. If you've ever used Western Union, cashed a check at a corner store, or bought a money order at the post office, you've used an MSB.

MSBs are regulated under the Bank Secrecy Act and must register with FinCEN. They face strict anti-money laundering requirements, state licensing obligations in most states, and ongoing compliance burdens that can rival traditional banks. All of this exists because MSB services are attractive to criminals who want to move money quickly across borders with minimal friction.

The MSB category covers a surprisingly wide range of businesses. PayPal is an MSB. So is the currency exchange kiosk at the airport. So is your local check cashing store. And increasingly, so are cryptocurrency exchanges. What unites them is that they move or exchange monetary value outside the traditional banking system.

If you're thinking about starting an MSB, working with an MSB, or just trying to understand the regulatory landscape, you need to understand how these businesses work, why they're considered high-risk, and what compliance obligations come with the territory. The consequences of getting it wrong are severe: civil penalties, criminal prosecution, and the very real possibility of losing access to banking services entirely.

Types of Money Services Businesses

FinCEN defines six categories of MSBs. Each has different thresholds and specific requirements. Understanding which category applies to your business is the first step in compliance.

Money Transmitters

This is the broadest category. A money transmitter is anyone who receives money from one person and transmits it to another person or location by any means. Western Union, MoneyGram, PayPal, Venmo, Wise, and most crypto exchanges fall into this category.

Here's the important part: there's no minimum transaction threshold for money transmitters. If you're transmitting money, you're an MSB, unless you qualify for a specific exemption. The exemptions are narrow. Banks and their agents are exempt. Pure payment processors who only process payments for goods and services may be exempt. But most businesses that touch money transmission need to register.

Currency Dealers or Exchangers

If you exchange currency of one country for currency of another, you're a currency dealer or exchanger. Airport kiosks, bank foreign exchange services, and some crypto platforms (when they exchange crypto for fiat) fit here.

The threshold is $1,000 per person per day. Exchange more than that, and you're an MSB.

Check Cashers

Check cashing stores, grocery stores with check cashing services, and similar businesses. The threshold is the same: more than $1,000 per person per day.

Issuers of Traveler's Checks, Money Orders, or Stored Value

Companies that issue traveler's checks (American Express), money orders (Western Union, USPS), or prepaid cards fall into this category. The threshold is more than $1,000 per person per day.

Sellers or Redeemers of Traveler's Checks, Money Orders, or Stored Value

Retail stores that sell money orders on behalf of an issuer, banks that redeem traveler's checks, convenience stores selling prepaid cards. Same threshold: more than $1,000 per person per day.

Providers and Sellers of Prepaid Access

Prepaid debit card issuers, gift card program managers, mobile wallet providers. Providers are MSBs regardless of dollar amount. Sellers are MSBs if they sell more than $10,000 of prepaid access to any person on any day.

Quick Reference

MSB Registration Requirements

Every MSB operating in the United States must register with FinCEN unless specifically exempt. This isn't optional. Operating as an unregistered MSB is a federal crime.

Who Must Register

Any business meeting the MSB definition needs to register. This includes domestic businesses, foreign businesses providing MSB services to U.S. persons, and businesses operating through agent networks. If you're doing MSB activities, you need to be on FinCEN's radar.

How to Register

Registration happens through FinCEN Form 107, which you file electronically through the BSA E-Filing System. The form asks for business name and addresses, ownership information, types of MSB activities, the states where you operate, and agent information if applicable.

There's no registration fee. FinCEN doesn't issue a registration number or certificate. You file the form, and you're registered.

Timing

Initial registration must happen within 180 days of beginning MSB activities. But smart operators register before starting operations. Why take the risk of operating unregistered?

Registration renewal is required every two years. You also need to update registration within 180 days if anything material changes: new ownership, new activities, expansion to new states.

Who's Exempt

Banks don't need to register as MSBs because they're already heavily regulated. People registered with the SEC or CFTC for certain activities are exempt. Agents of MSBs don't register separately; the principal MSB registers and reports its agents.

But here's the catch: exemption from FinCEN registration doesn't exempt you from state licensing. States have their own requirements, and most of them are more demanding than FinCEN's registration.

Why Are MSBs Considered High Risk?

Banks don't like MSB customers. Regulators scrutinize them intensely. Why? Because the characteristics that make MSB services useful to legitimate customers also make them attractive to criminals.

Speed and Reach

MSBs move money fast, often across borders. A wire transfer through a bank might take days and require multiple approvals. A remittance through an MSB can happen in minutes. That speed is valuable for someone sending money to family overseas. It's also valuable for someone trying to move illicit funds before anyone notices.

Limited Friction

Many MSB services require minimal customer identification, especially for smaller transactions. That's convenient for customers who need to send money quickly. It's also convenient for criminals who want to avoid scrutiny.

Cash Intensity

Traditional MSBs like check cashers and money transmitters handle large volumes of cash. Cash is anonymous. It's hard to trace. And it's easy to commingle illicit funds with legitimate business when cash is flowing through the operation daily.

Agent Networks

Major MSBs operate through thousands of agents spread across the country and around the world. A Western Union agent might be a grocery store, a check cashing shop, or a small convenience store. Maintaining consistent compliance across that many locations is genuinely difficult. And inconsistent compliance creates gaps that criminals can exploit.

Customer Base

MSBs often serve unbanked and underbanked populations. These are people who can't or won't use traditional banking for various reasons. Some of those reasons are perfectly legitimate. Some involve avoiding the scrutiny that comes with a bank account.

What This Means in Practice

Because of these risk factors, MSBs face demanding regulatory requirements, intense examination scrutiny, and difficulty maintaining banking relationships. Banks have been fined hundreds of millions of dollars for inadequate oversight of MSB customers. Many banks have decided the risk isn't worth the revenue and refuse to serve MSBs entirely.

MSB Compliance Requirements

MSBs don't just register and walk away. They need full anti-money laundering programs comparable to what banks maintain.

AML Program Requirements

Every MSB must develop, implement, and maintain a written AML program designed to prevent the business from being used for money laundering or terrorist financing. The program needs five elements.

Written Policies and Procedures. Documented policies covering all compliance activities. Not a template you downloaded and forgot about. Real procedures that your staff actually follows.

Compliance Officer. Someone responsible for day-to-day compliance. This person needs authority to implement the program and a direct line to management.

Training. All relevant employees need initial and ongoing training. The training has to be appropriate to their role. A compliance analyst needs different training than a customer service rep.

Independent Testing. Periodic testing of your AML controls by someone independent of day-to-day compliance. Annual testing is standard for most MSBs.

Customer Identification Program. Procedures to verify customer identity. The depth of verification should be risk-based, but you need to know who you're doing business with.

Reporting Requirements

MSBs file the same reports banks do, with slightly different thresholds in some cases.

Suspicious Activity Reports (SARs). Required for transactions of $2,000 or more when you know, suspect, or have reason to suspect the transaction involves illegal activity. You have 30 days from detection to file. And you can never tell the customer you've filed.

Currency Transaction Reports (CTRs). Required for cash transactions exceeding $10,000. Multiple transactions that add up to more than $10,000 for the same person in the same day also count. File within 15 days.

Recordkeeping

Keep records of customer identification, transaction records, and suspicious activity monitoring for five years. Records need to be accessible, and you need to produce them when regulators ask.

Agent Oversight

If you operate through agents, you're responsible for their compliance. That means due diligence before you bring on an agent, AML training for agent staff, ongoing monitoring of agent activity, and termination of agents who don't comply.

MSB State Licensing Requirements

Federal registration is just the start. Most states require separate licenses, and state requirements are often more burdensome than federal ones.

Where You Need Licenses

Forty-nine states plus DC, Puerto Rico, and the U.S. Virgin Islands require some form of money transmission license. Only Montana doesn't require licensing for most MSB activities.

The catch is that each state has its own requirements, its own forms, and its own processes. There's no federal preemption. If you want to operate nationwide, you need to go through licensing in each state individually.

What States Require

State requirements typically include minimum net worth, ranging from $100,000 to over $1,000,000 depending on the state. You'll need surety bonds, with amounts varying by state and transaction volume. Background checks on owners, officers, and key personnel are universal. Most states want audited financial statements, a business plan, and documentation of your compliance program. Fingerprinting of key individuals is common.

The Cost of Nationwide Licensing

Getting licensed in all states can cost hundreds of thousands of dollars when you add up application fees, bond premiums, audit costs, and legal fees. The process typically takes 12 to 18 months, sometimes longer.

Once you're licensed, you face ongoing costs: annual renewal fees, periodic examinations by state regulators, updated audits, and compliance with changing state requirements.

The NMLS System

Many states participate in the Nationwide Multistate Licensing System (NMLS), which provides centralized filing and reporting. This helps with administrative burden, but it doesn't eliminate state-by-state variation in actual requirements. You still need to meet each state's specific standards.

Cryptocurrency Exchanges as MSBs

The growth of cryptocurrency created questions about where digital assets fit in the regulatory framework. FinCEN answered in 2013: most crypto businesses are MSBs.

FinCEN's Position

If you accept and transmit convertible virtual currency (crypto), you're a money transmitter. If you buy or sell crypto for customers, you're a money transmitter. It doesn't matter that you're moving Bitcoin instead of dollars. You're still moving value, and that makes you an MSB.

Administrators of virtual currency systems, meaning people who issue or redeem crypto, are also money transmitters.

Users of crypto, people who just buy and hold or spend crypto for personal purchases, are not MSBs.

What This Means for Crypto Businesses

Centralized crypto exchanges are clearly MSBs. Coinbase, Kraken, Gemini, and similar platforms register with FinCEN and maintain full AML programs.

Peer-to-peer exchanges that facilitate trading between users are generally MSBs too.

Cryptocurrency ATMs that let people buy or sell crypto for cash are MSBs.

Custodial wallet providers that hold crypto on behalf of customers are generally MSBs.

Decentralized exchanges and DeFi protocols are more complicated, and guidance is still evolving.

Crypto-Specific Challenges

Crypto MSBs face unique compliance challenges. Transaction monitoring requires specialized blockchain analytics tools. The Travel Rule, which requires transmitting customer information with transfers above $3,000, applies to crypto and requires technical solutions. Sanctions screening for crypto addresses needs dedicated tools. And the regulatory landscape keeps changing.

State Licensing for Crypto

Many states treat crypto businesses like traditional money transmitters and require standard money transmission licenses. New York went further with its BitLicense, a special license just for virtual currency businesses. Some states are developing crypto-specific frameworks. It's a patchwork, and it keeps evolving.

MSB Banking Challenges

One of the biggest operational challenges for MSBs is finding and keeping a bank account. Many banks simply won't serve MSB customers.

Why Banks Refuse MSBs

Banks face regulatory scrutiny for their MSB relationships. They've seen other banks fined hundreds of millions of dollars for inadequate MSB oversight. The revenue from an MSB account often doesn't justify the compliance cost and risk.

For banks, serving MSBs requires enhanced due diligence at onboarding, ongoing monitoring of the MSB's activity, periodic reviews of the MSB's compliance program, and the constant risk that something will go wrong and regulators will ask uncomfortable questions.

Many banks have concluded it's easier to just say no.

Impact on MSBs

The result is that legitimate MSBs struggle to find banking partners. They face higher fees when they do find banks willing to work with them. Account closures can come suddenly, with little notice or explanation. And the search for banking takes management attention away from actually running the business.

In extreme cases, MSBs that can't find banking move to cash-based operations, which is exactly the opposite of what regulators want.

What MSBs Can Do

Building and maintaining banking relationships requires demonstrating strong compliance. That means documented AML programs, regular independent audits, prompt attention to any deficiencies, and transparent communication with your bank.

Some banks specialize in serving MSBs and understand the industry. Community development financial institutions (CDFIs) sometimes work with MSBs. The search takes effort, and the relationships require ongoing maintenance.

Regulators have issued guidance discouraging blanket de-risking, saying banks should assess MSB customers individually rather than refusing the entire category. But banks still make their own risk decisions.

MSB vs. Banks: Key Differences

MSBs and banks both handle money, but they operate under fundamentally different regulatory frameworks.

Regulatory Structure

Banks have federal charters and face supervision from banking regulators like the OCC, FDIC, or Federal Reserve. MSBs don't have federal charters. They register with FinCEN and get licensed by states. The regulatory relationship is different.

Banks have access to the Federal Reserve payment system and can hold deposits backed by FDIC insurance. MSBs have neither. They operate outside the traditional banking infrastructure.

What They Can and Can't Do

Banks accept deposits and make loans. That's their core business. MSBs generally can't do either. They transmit money, exchange currency, cash checks, and provide similar payment services. But they're not taking deposits and they're not extending credit.

This limitation shapes the business model. MSBs earn revenue from transaction fees rather than the spread between deposit rates and loan rates.

Compliance Requirements

Both banks and MSBs have AML programs, file SARs and CTRs, and face examination. But the threshold for SAR filing differs ($5,000 for banks, $2,000 for MSBs). Examination processes differ. And the regulatory relationship differs in tone and expectation.

Customer Base

Banks serve broad populations. MSBs often serve specialized niches: people who need to send remittances overseas, people who don't have bank accounts, businesses that need rapid cross-border payments. The customer base shapes the risk profile.

Starting a Money Services Business

If you're considering entering the MSB space, understand what you're getting into. The barriers to entry are high and the compliance burden is substantial.

Before You Start

First, confirm that what you want to do actually qualifies as MSB activity. Not every payment-related business is an MSB. Some business models, particularly pure payment processing for merchants, may not trigger MSB registration if structured correctly. Get legal advice before assuming either way.

If you are an MSB, assess the regulatory landscape. Which states will you operate in? What are the licensing requirements in each? What will it cost? How long will it take?

Build realistic financial projections that account for compliance costs. AML programs aren't cheap. Independent audits, ongoing monitoring, staff training, technology systems. These costs are real and ongoing.

The Licensing Process

Plan for 12 to 18 months to get licensed nationwide. Longer if you hit snags. Some states are faster than others. Some require more back-and-forth.

Register with FinCEN before or shortly after starting the licensing process. You can register before you're fully operational.

Prepare extensive documentation: business plans, financial projections, compliance program documentation, background information on principals. States want to understand your business and verify that you're legitimate.

Banking Relationships

Start looking for banking partners early. This can take longer than the licensing itself. Banks that serve MSBs want to see your compliance infrastructure before they'll take you on. Some want to see operating history, which creates a chicken-and-egg problem.

Consider which banks serve MSBs in your specific niche. Get introductions if you can. Be prepared to provide extensive documentation and answer detailed questions about your business.

Building Compliance Infrastructure

Don't treat compliance as an afterthought. Build it into your business from the start. Hire compliance expertise early. Implement systems before you need them. Document everything.

The MSBs that succeed long-term are the ones that take compliance seriously from day one. The ones that try to build compliance after the fact usually struggle.

MSB Compliance Best Practices

What separates MSBs that thrive from MSBs that end up in enforcement actions? Usually, it comes down to how seriously they take compliance.

Build a Real Program

Your AML program shouldn't be a document that sits in a drawer. It should be a living set of procedures that your staff actually uses. Review it regularly. Update it when things change. Train people on it.

Invest in Technology

Manual compliance doesn't scale. As transaction volumes grow, you need automated transaction monitoring, automated sanctions screening, case management systems, and proper recordkeeping. The technology investment is significant, but it's necessary.

Take Agent Oversight Seriously

If you operate through agents, their compliance failures are your compliance failures. Due diligence before bringing on agents. Training for their staff. Monitoring of their activity. Quick action when problems emerge.

Maintain Banking Relationships

Your banking relationship is your lifeline. Keep your bank informed. Share audit results proactively. Address any concerns immediately. Don't make your bank surprised by something they should have known about.

Stay Current

Regulations change. Enforcement priorities shift. New guidance emerges. Stay connected to industry developments. Participate in trade associations. Read regulatory releases. Update your program when expectations evolve.