1 Progress for the Industry: Ideas to foster a better marketplace Progress for the Industry: Ideas to foster a better marketplace Presented by Ronald Schwartzman on behalf of UniTeller to the MTRA November 15, 2006

2 Introduction From the industry perspective: How to improve the marketplace for the industry, remitters and the regulators Areas for improvement: Change the MSB label to remove the stigma Urge FinCEN to revise categories –Lack of FinCEN guidance accepts the status quo Lack of access to banks - Most serious repercussions on smaller remittance companies - Increased costs for larger remittance companies causing shifts in resource allocation

3 Areas to foster positive change What is the best way to further the purpose of BSA ? Common threads damaging the industry –High Risk Label from the federal banking authorities –Lack of recognition of sophistication of technology of remittance companies –Maintaining a bank account –Duplication of work with various state agencies –Image aired in the media Effects on the marketplace and the consumer resulting from these issues

4 Changing the high risk label Broad and diverse variety of MSB’s does not assist the regulators or the consumers –Licensed Remittance Companies are heavily regulated and should be so recognized as LRC’s MTRA Pres.’s statement Wal-Mart vs. LRC vs. Mom-and-Pop store Stored value card sellers Differences in transactions processed and risks Dollar limits Technological sophistication and aggregation UNLICENSED REMITTERS Industry reputation

5 Correct the label: LRC’s as the legitimate remitters Recognize and publicize the rigors in both the application, renewal and examination processes that LRC’s continuously undergo Compare the regulatory record of the banks vs. the LRC’s where substantial money laundering has been found OFA C Tra ini ng FIN CEN IT Educ ation C.O. ID’ s KYC BSA

6 Shift the focus to the strengths of the industry The elements that deserve more attention from the public and federal and state policy makers –Review of each transaction by an LRC vs. review by banks primarily of account levels –Bonding and net worth requirements –Limitations on agent’s processing abilities –Strength of agent selection process and oversight –Technological sophistication –Transaction aggregation policies –Effects of violations: Fines and Penalties for banks vs. revocation of license for LRC’s

7 Insurance and Surety Bonds Minimums –Barrier to entry for small companies –Not in proportion to transactions processed Maximums –Benefit to largest LRC’s that pay less per transaction for the cost of the bond –Maximum not tied to a specific credit risk evaluation –Assumes LRC’s carrying larger volumes are more creditworthy Considerations - Review bond amount on total picture (credit evaluation and transaction totals) - Raise or lower bond based on LRC’s credit rating

8 Access to Banks Without bank access, an LRC cannot operate De facto regulation by banks Regulatory and business pressures on banks lead to closing of accounts Capacity of banks to evaluate LRC’s - LRC’s provide AML programs, state license(s) - LRC’s provide independent reviews Differentiation among MSB’s - Brokerage firm vs. jeweler vs. car dealer - No denial of service despite MSB status or money laundering risk - Costly monthly fees due to MSB status egular communications with Agent

9 Use of Regulatory Resources Increasing Demands on State Banking Departments –Cooperative efforts among states –Multi-state renewals –Cooperative examinations –More resources applied against unlicensed remittance companies

10 Consolidation of industry Smaller companies disappearing Difficulty maintaining bank access Technological demands Higher minimum bonds and net worth requirements Result: Less competition Costs to consumers may increase Less reporting of remittance transactions and more remittances go through unlicensed channels

11 Conclusions Improvements to benefit the industry, remitters and the regulators: Urge FinCEN to separate LRC’s as a category Protect banks from responsibility for LRC accounts and stop bank de facto regulation of the industry Beneficial treatment for partnerships between banks and LRC’s Improve cooperation among states in their regulation and examination of LRC’s Media recognition of strengths of LRC’s and critical importance to BSA implementation

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