Vigilance on money laundering hits money-service businesses

In an effort to comply with more stringent anti-money-laundering regulations, some Canadian banks are cutting ties with small businesses that offer money services, including overseas transfers and foreign exchange.

The trend has been noticed by an association for more than 200 of these money-services businesses and their affiliates. Its co-chairs sent a written complaint this week to Canada’s top banking regulator, suggesting the move is frustrating competition and will drive these business lines to unregulated marketplaces.

In a letter sent to Jeremy Rudin, head of Canada’s Office of the Superintendent of Financial Institutions, the Canadian Money Service Business Association says members have had their bank accounts closed in what appears to be a sector-wide “sweep,” even though they comply with all anti-money laundering rules.

The group says cutting off access to basic banking services is making it difficult for the businesses to remain viable and offer transaction fees that are often lower than those charged by traditional banks.

“Without risk of money laundering or reputational damage, we can only assume that the decision to close these accounts relates to the competition that they represent,” association co-chairs Michael Smith and Carinta Mannarelli wrote in the letter to OSFI.

“Our experience and data shows that this de-banking phenomenon is industrywide.”

More than 800 registered money services businesses operate in Canada, providing services that include foreign exchange dealing, money transferring, and cashing or selling money orders and travellers’ cheques.

The letter to OSFI says there has been a widespread “withdrawal of service” by the Bank of Nova Scotia and other financial services institutions — terminating decadeslong relationships in some cases.

Rick Roth, a spokesperson for Scotia, said the bank recently reviewed the global money service businesses industry and adopted new guidelines for opening and maintaining accounts in the segment to ensure the bank remains in line with its risk-management practices.

The overhaul included “exiting some relationships and closing accounts,” he said.

Canada’s big banks have made anti-money-laundering efforts and related risk management a priority in recent years, both financially and operationally, to comply with strict international and domestic rules. Failures can lead to fines and cause problems with regulators in Canada and internationally.

Smith and Mannarelli say the crackdown is making it harder for money-service businesses to secure bank accounts despite a number of regulatory safeguards, including registration with Fintrac and a history of compliance.

MSBs are required to register with Fintrac, keep records, identify clients, send reports, and have a compliance regime in place. They may also be subjected to examinations by Fintrac, including visits, the agency’s website says.

Fintrac spokesman Darren Gibb said his agency encourages “financial inclusion.” However, each bank “has to determine what’s acceptable for their business,” he said.

Mannarelli is president of Global Currency Services Inc., which is among the money-service businesses struggling to find a bank.

“I have knocked on the doors of seven banks and credit unions — all of whom currently have a no MSB rule,” she told the Financial Post, adding that her company charges a client $15 to send $100 to the Philippines compared to posted bank rates of at least $25.

Smith says the reluctance of banks to work with money service operators is driving the business into the hands of unregistered and unregulated operators and “creating an underground economy … where non-compliant MSB’s are going underground to deal with each other in cash.”

The association co-chairs hope to discuss their concerns with representatives from OSFI, the federal Minister of Finance and Fintrac.