The Financial Crimes Enforcement Network (FinCEN) recently issued interpretive guidance to clarify whether a person who conducts transactions in currency or other commodities is a money services business (MSB) for purposes of complying with the Bank Secrecy Act (BSA) and its implementing regulations. Specifically, the guidance addressed whether a broker or dealer in currency or other commodities is a money transmitter when, in the ordinary course of business, the broker or dealer accepts and transmits funds in order to effect transactions in currency or other commodities for or with a customer. 

In its official guidance, FinCEN noted that whether a person is a money transmitter is a matter of facts and circumstances. “Our regulations define the term ‘money transmitter’ to include ‘any person … who engages as a business in accepting currency, or funds denominated in currency, and transmits the currency or funds, or the value of the currency or funds, by any means through a financial agency or institution … or … any other person engaged as a business in the transfer of funds,” FinCEN observed. On the other hand, FinCEN regulations exclude for the money transmitter definition “any person, such as a futures commission merchant, that is ‘registered with, and regulated or examined by … the Commodity Futures Trading Commission.’” FinCEN regulations also provide that “the acceptance and transmission of funds as an integral part of the execution and settlement of a transaction other than the funds transmission itself … will not cause a person to be a money transmitter.”

“Bona Fide Purchase or Sale”

When a broker or dealer in currency or other commodities accepts and transmits funds solely for the purpose of effecting a bona fide purchase or sale of currency or other commodities for or with a customer, such person is not engaged as a business in the transfer of funds, and is not acting as a money transmitter as the term is defined in our regulations, the FinCEN guidance declared. “In such circumstances, the transmission of funds is a fundamental element of the actual transaction necessary to execute the contract for the purchase or sale of the currency or the other commodity. The transmission of funds is not a separate and discrete service provided in addition to the underlying transaction. It is a necessary and integral part of the transaction.”

However, FinCEN warned, the conclusions in its interpretive “guidance are limited to circumstances in which a broker or dealer in currency or other commodities accepts and transmits funds as an integral part of the execution and settlement of a transaction other than the funds transmission itself.” A broker or dealer in currency or other commodities is not solely engaged in the execution and settlement of a purchase or sale when the broker or dealer transfers funds between a customer and a third party that is not party to the currency or commodity transaction.

For example, the broker or dealer could transfer funds between a customer and a third party by permitting a third party to fund a customer’s account, by transferring a customer’s currency or commodity position to a third party, or by closing out a customer’s currency or commodity position with a transfer by the broker or dealer of proceeds from the position to a third party. If the broker or dealer, by providing such additional services, is engaged as a business in the transfer of funds, then the broker or dealer is acting as a money transmitter as that term is defined in FinCEN regulations.

Of course the facts and circumstances surrounding the services provided by the broker or dealer will be determinate of whether the dealer is acting as a money transmitter, FinCEN stated.

Registration with FinCEN

“Facts and circumstances also will determine whether a broker or dealer that is a money transmitter is required to register with FinCEN,” the new guidance states. “If a broker or dealer is engaged in the business of a money transmitter in its own right, then it is subject to money services business regulations that include the requirement to register with FinCEN. If the broker or dealer is acting as a money transmitter solely because it is acting as the agent of another money transmitter, then it is subject to all of the money services business regulations except the registration requirement.”

Finally, FinCEN cautioned that its interpretive guidance is limited to its definition of money transmitter. When effecting the bona fide purchase or sale of currency or of certain metals, stones, and jewels, a dealer may be a “currency dealer or exchanger” or a “dealer in precious metals, precious stones, or jewels” as those terms are defined in FinCEN regulations.

Financial institutions with questions about this guidance or other matters related to compliance with the Bank Secrecy Act and its implementing regulations may contact FinCEN’s Regulatory Helpline at (800) 949-2732. FinCEN 2008-G-008