On June 28, 2010, a Notice of Proposed Rulemaking entitled “Amendment to the Bank Secrecy Act Regulations – Definitions and Other Regulations Relating to Prepaid Access” (“Proposed Rule”) was published in the Federal Register. 75 Fed. Reg. 36589. The Proposed Rule, which was mandated by Congress under the Credit Card Accountability Responsibility and Disclosure Act of 2009, makes significant changes to the Bank Secrecy Act (BSA) and anti-money laundering (AML) obligations that would apply to persons engaged in the prepaid card business.
The Proposed Rule establishes a more comprehensive regulatory framework for “prepaid access” (which replaces the term “stored value”), in that the Proposed Rule expands the number of parties subject to the BSA and expands the obligations of those parties involved in the distribution of prepaid access. To this end, the Proposed Rule adds two types of entities to the definition of money service business (MSB): providers and sellers of prepaid access.
A. New Terms Related to Prepaid Card Activities
Importantly, the new entities that the Proposed Rule would add to the definition of MSB are based on the definition of another critical term included in the Proposed Rule, which is “prepaid program.” A prepaid program is defined under the Proposed Rule as “an arrangement under which one or more persons acting together provide(s) a particular form of prepaid access.” The Proposed Rule specifies that an arrangement is not a prepaid program if it involves the payment of employment benefits, government benefits or health care benefits; is limited in value; or is limited to closed-loop prepaid access and does not permit:
- funds or value to be transmitted internationally;
- transfers between or among users of prepaid access within a prepaid program, such as person-to-person transfers; or
- unless it qualifies as closed-loop prepaid access, the ability to load monetary value from other nondepository sources onto prepaid access.
The Proposed Rule defines “prepaid access” as an “[e]lectronic device or vehicle, such as a card, plate, code, number, electronic serial number, mobile identification number, personal identification number, or other instrument that provides a portal to funds or the value of funds that have been paid in advance and can be retrievable and transferable at some point in the future.”
B. Provide of Prepaid Access
The Proposed Rule adds the term “provider of prepaid access” (“Provider”) to the definition of MSB, which, generally speaking, will apply to any person with “principal oversight and control” over one or more prepaid programs. The determination of whether a person has “principal oversight and control” is to be made based on a multifactor analysis.
In addition to any obligations that they currently have under existing BSA rules, the Propose Rule would subject Providers to new obligations, including (1) the establishment of an AML program, (2) suspicious activity report (SAR) filing, (3) customer identification requirements and (4) record retention requirements. Providers are also required to register with FinCEN, identify each prepaid program for which they provide prepaid access and maintain a list of their agents. Notably, existing BSA rules exempt issuers, sellers and redeemers of stored value from registering with FinCEN; the Proposed Rule aims to do away with this exemption for Providers.
C. Seller of Prepaid Access
The Proposed Rule also adds the term “seller of prepaid access” (“Seller”) to the definition of MSB, which is defined to mean “any person that receives funds or the value of funds in exchanging for providing prepaid access as part of a prepaid program directly to the person that provided the funds or value, or to a third party as directed by that person.” FinCEN views Sellers of prepaid access as being only second in importance to Providers of prepaid access, because the Seller of prepaid access is the party with the most faceto- face contact with the purchaser and, thus, is able to capture information at the point of sale that cannot be done by any other party in the transaction chain.
In addition to any obligations that they currently have under existing BSA rules, the Propose Rule would subject Sellers to new obligations, including (1) the establishment of an AML program, (2) SAR filing and (3) customer identification requirements.
Unlike Providers, Sellers are not required to maintain transactional records or register with FinCEN.
Comments on the Proposed Rule were due by August 27, 2010.