WASHINGTON - Federal regulators made an unusual appeal to bankers Wednesday to stop severing their relationships with money-service businesses until a policy remedy can be worked out.
The Financial Crimes Enforcement Network and the banking, thrift, and credit union agencies issued a two-page statement that said heightened scrutiny of banks' relationships with those businesses had made bankers seek to avoid regulatory penalties.
"Money-service businesses are losing access to banking services as a result of concerns about regulatory scrutiny, the risks presented by money-service business accounts, and the costs and burdens associated with maintaining such accounts," the statement said.
It continued, "Concerns may stem, in part, from a misperception of the requirements of the Bank Secrecy Act, and the erroneous view that money-service businesses present a uniform and unacceptably high risk of money laundering or other illicit activity."
The statement from the regulators promised they would "soon" release detailed guidelines on what banks are expected to do in opening and maintaining a relationship with check cashers, money remitters, and the like. William Langford, the associate director for Fincen's regulator policy and programs division, said in an interview that his agency and the other regulators "frankly haven't been clear about what we expect."
He said that though banks should discontinue working with any individual money-service business they believe is involved in illegitimate activity, he hopes banks will not decide to end all relationships with money-service outfits. He said the agencies plan to publish the guidelines by the end of April to help bankers and MSBs better understand what regulators want.
"We hear that banking institutions are making a decision to exit the business," Mr. Langford said. "If an institution is on the fence and considering that, stay tuned. More information is coming. We fear these decisions were being made without clear statements from us."
Banking industry representatives said they were particularly pleased by the statement's recognition that banks are not meant to serve as overseers of MSBs. "The Bank Secrecy Act does not require, and neither Fincen nor the federal banking agencies expect, banking institutions to serve as the de facto regulator of the money-service-business agency," the statement said.
John Byrne, the director of the American Bankers Association's Center for Regulatory Compliance, said that recognition is a big deal for the industry.
"The premise was the opposite before - we were being asked to be in the shoes of regulators when we did services with MSBs," Mr. Byrne said. "This is a major policy statement. We have been under the cloud of not knowing how much we need to do to legitimately retain an MSB."
Mr. Byrne and Mr. Langford said that the statement alone is not enough but that new instruction should help. "We need the guidance quickly," Mr. Byrne said.
Gerald Goldman, the general counsel for the Financial Service Centers of America, which represents 5,000 check-cashing businesses, could not agree more. He called Wednesday's statement a "step in the right direction" but said concrete guidance is badly needed.
"We've gone from 'It's not our intention to have total industries annihilated' to 'Banks should be looking at this on a case-by-case basis,' " Mr. Goldman said.
"We want them to ask banks to observe a moratorium" on dropping money-service businesses so that at a minimum, the status quo can be maintained and no more companies lose their bank relationships, he said.
The issue has shot to the forefront of problems in the anti-laundering system, propelled in part by JPMorgan Chase & Co.'s announcement that it would cease working with MSBs. Other banks have quietly begun making similar moves.
Diana Taylor, the superintendent for banks at the New York State Banking Department, along with other New York officials, wrote a letter to Fincen on March 25 imploring them to do something before the matter got worse.
Ms. Taylor said in an interview Wednesday that the statement was encouraging but that banks needed the guidance "yesterday."
"We've been told it is imminent for a while," she said. "We hope they can do it quickly and come up with something that has some teeth, that makes sense, and that people can be comfortable with."
But some observers wondered how committed the banking agencies are to correcting the problem.
Richard Cheatham, an attorney with the firm of Kirkpatrick Stockton LLP in Atlanta, said Wednesday's statement was "great - if they mean it."
In several cases, Mr. Cheatham said, examiners told banks to create a profile of the accounts maintained by their money-service-business customers and to question those customers whenever their account activity deviated from the profile. These types of stipulations make banks play the de facto regulatory role the statement criticizes, Mr. Cheatham said.
