Banks and the MSB Sector

This article originally appeared in the National Pawnbroker Association magazine in September 2015.


“Derisking” in the Money Service Business Sector. “What is it? What does it mean for my business?”

If you are running a business in, or touching on, the MSB sector, then the chances are that you have heard the term derisking. If you have not heard it, then it is likely that you soon will.

Worldwide, banks are undertaking a risk assessment by market sector of their customers.

In simple terms the banks are weighing the revenue to be made from a sector versus the risk that the Bank takes on by dealing with that sector. Alarmingly, a frequent outcome of this consideration appears to be;

“Close all accounts in sector x. Too risky.”

Sectors currently being viewed as ‘toxic’ are foreign exchange and money transfer.

Ostensibly, derisking is driven by compliance concerns around those types of business. Some commentators have speculated as to whether there might be other more mundane motivating factors, such as the good, old-fashioned profit motive.

Organisations such as the NPA are working extremely hard to build an understanding across the regulators and the banks on how to ensure that legitimate well-run business is not adversely affected by the phenomenon.

Whatever the motivation behind derisking, the reality is that many pawnbrokers find their business under intense scrutiny from their bankers; particularly those pawnbrokers that offer either money transfer or foreign exchange as an ancillary service.

Regrettably, there is no ‘silver bullet’, no magic formula, that will guarantee that your bank partner is happy to continue servicing your business.

One absolute certainty though, is that your bank will expect you to be fully compliant with all Anti Money Laundering, Counter Terrorist Financing and Sanctions legislation, with detailed documentation in place to demonstrate that compliance.

One senior account manager at a well-known high street bank said to me;

“Excellent compliance is seen as a given. Any customer that seems in any way non-compliant is straight out.”

That is nothing, if not clear!

Excellent compliance is the expected base standard. The bar has been set much higher. “Excellence as standard” as they say in the car manufacturing business.

Even if your business does not offer foreign exchange or money remittance and is not currently under the microscope, it will be under that microscope soon.

“London is not a place to stash your dodgy cash” said the Prime Minister on July 28th 2015, in a speech on property that had London estate agents (and doubtless their bank managers too) reaching for their compliance manuals.

What does an effective compliance program look like?

It is very likely that it looks a lot like the one that you already have in place. At its core, effective compliance is about knowing your customer. It is about understanding who your customer is, where his assets come from and why he is using your service. In short, it looks like many of the things that you already focus on as an integral part of running your business.

Your compliance program begins with your policies and procedures (P&P). These are the foundation stones upon which all else is built. Your policies outline to your staff, your partners and yes, your bank, how you are going to deter, detect and disrupt money laundering.

Your policies and procedures should be documented, signed off by senior management and read and understood by every member of staff. Here, you spell out how you are going conduct your business and how you are going to monitor your business. You provide an outline of how you will train your staff and how you will test them. You explain how you will report suspicious activity and how you will assess, review and improve your regime.

A dusty old folder on the top shelf will not cut it any more. Your P&P must be at the heart of what you do. You and your teams must know them, understand them, believe and practice them. When something changes in the way that you do business, your P&P change too. As financial crime methodologies evolve, so do your measures to counter them.

The age of the tick box has passed. Effective, meaningful compliance is a state of mind, it is a culture that should run through the heart of your business.

Will an effective compliance culture guarantee success for your business?

No, I am afraid it will not. However, without an effective compliance culture your business will almost certainly struggle to function for long in 21st century Europe.