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From Banking and Finance Law Daily, September 9, 2013

FTC says no enforcement action against money transmitters for information sharing

By Katalina M. Bianco, J.D.

Federal Trade Commission staff members have issued an advisory opinion stating that the commission has no plans at present to recommend an enforcement action against The Money Services Round Table (TMSRT) for its proposal to collect and disseminate certain information regarding terminated United States money transmitter agents. TMSRT had requested that the FTC issue the advisory on whether the FTC would consider the information exchange as an anticompetitive restraint of trade and thereby recommend an enforcement action.

Background. TMSRT is a trade association comprised of six licensed national money transmitters (TMSRT Participants), the FTC explained in its announcement. Money transmitters are non-bank entities that transfer funds from one individual or institution to another by wire, check, computer network, or other means. TMSRT Participants are the largest money transmitters in the United States, by volume and revenue, and offer money transfer services to consumers via a network of agents.

Regulation of transmitters. The Bank Secrecy Act (BSA) requires money transmitters, banks, and other financial institutions to maintain records and to file reports, which are used by law enforcement agencies to prevent and detect money laundering, terrorist financing, and other crimes. In addition, the BSA requires money transmitters to develop and implement an "effective anti-money laundering program reasonably designed to prevent [the money transmitter] from being used to facilitate money laundering and the financing of terrorist activities."

In addition, nearly every state regulates money transmitters through licensing laws. Several states also have enacted statutes or implemented regulations that make violations of the BSA a state violation. Certain states also require money transmitters to conduct "risk-based background investigations" of prospective agents to determine whether such agents have "complied with applicable state and federal law, including laws dealing with fraud and other criminal activities harmful to consumers.”

Proposed information exchange. TMSRT has proposed the creation of an information exchange that would consist of a database developed, maintained, and secured by an independent third-party vendor. The database would contain information about former U.S. sending and receiving agents whose contractual relationships were terminated due to failure to comply with federal or state law, or money transmitter contract terms or policies. Participation in the exchange would be voluntary.

Advisory opinion. The FTC staff found that the goals of the information exchange do not appear to be either directly or indirectly anticompetitive, or designed to further coordination among U.S. money transmitters with regard to any significant competitive factor, such as the commission rates paid to agents for completing money transfer services.

The fact that the database would be maintained and secured by a third-party vendor would further lessen the risk of competitive harm, as would the voluntary membership, the FTC said. Also, each member would conduct its own risk assessment and render its own judgment regarding whether to appoint a terminated agent.

FTC staff also noted that the proposed information exchange could enhance consumer welfare. If the sharing of terminated agent information would improve members’ ability to conduct thorough background checks on prospective agents, the information exchange could prevent the appointment of agents who may be money launderers or other criminal offenders, thus benefitting consumers.

RegulatoryActivity: BankSecrecyAct CrimesOffenses EnforcementActions

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