Analyst provides AML requirement specifics

When prepaid card businesses file paperwork to register as money services businesses by the Jan. 29, 2012, deadline, they will need to comply with new anti-money laundering (AML) regulations created by the Financial Crimes Enforcement Network (FinCEN). An analyst at the Atlanta Federal Reserve's Retail Payments Risk Forum detailed those compliance obligations, including what cards are subject to regulation and record collection responsibilities for prepaid card providers.

In The prepaid market: Growth and sophistication mean more risk, Senior Payments Risk Analyst Ana Cavazos-Wright said prepaid card companies' AML programs will "depend on the risk appetite, size, customer base, and geography of the sellers and providers [of prepaid card products]."

Under the new rules, businesses must retain customer transaction records for five years. When FinCEN or other law enforcement entities request those records, businesses will have to file suspicious activity reports and currency transaction reports.

But not all prepaid card programs are subject to regulation. In the closed-loop market, only programs that allow load amounts over $2,000 on any given day are to be regulated, Cavazos-Wright said. In the open-loop segment, cards that can be used internationally, that have person-to-person money transfer functionality and that can be reloaded by a nonbank are covered in the regulations, she added.

Thus, payroll, government benefits and rewards cards that do not have the above capabilities are excluded from regulation. FinCEN decided against regulating such cards because they "posed a decreased risk of money laundering, terrorist financing and other criminal activities," Cavazos-Wright said.

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