Can we bank a customer that is operating like an MSB (providing check-cashing services) that does not have an MSB license? Why would a larger bank refuse to bank such a customer, and tell them to try a smaller bank for obtaining banking services?

The question of whether you should bank a company that is providing check cashing services is a business decision based on the risks involved and your institution’s ability to manage those risks. The Bank Secrecy Act requirements for money services businesses (MSBs) and your anti-money laundering responsibilities do not depend on the size of your institution, and we are not aware of any different requirements that might apply to a larger institution versus a smaller institution. See 31 CFR 1020.210.

Depending on the level of check-cashing activity at the company, it may be required to register as an MSB with FinCEN. A business that provides check cashing services “in an amount greater than $1,000 for any person on any day in one or more transactions” must register as an MSB. 31 CFR 1010.100(ff)(2)31 CFR 1022.380. In addition, the business also may have to obtain a license under the Illinois Currency Exchange Act if it is “engaged in the business or service of, and providing facilities for, cashing checks, drafts, money orders or any other evidences of money . . . .” 205 ILCS 405/2.

However, we are not aware of any law or rule that requires a bank to obtain a copy of an MSB’s license or registration before opening an account. FinCEN’s recent statement on banking MSBs emphasizes that banks are not expected to “serve as the de facto regulator” for MSBs. FinCEN Statement on Providing Banking Services to MSBs (November 10, 2014). More specifically, the Interagency Interpretive Guidance on Providing Banking Services to Money Services Businesses states that banks “are not required to refuse to open new accounts for money services businesses that have failed to comply with registration or licensing requirements . . . .” However, you also may choose to reject customers on that basis: “It is reasonable and appropriate for a banking organization to insist that a money services business provide evidence of compliance with such requirements or demonstrate that it is not subject to such requirements.” Of course, “noncompliance by a customer with applicable licensing, registration or other regulatory requirements after learning of such requirements would likely be an indicator of heightened risk,” and you should file a suspicious activity report if you are aware that a company is operating in violation of state or federal registration or licensing requirements. Id.