The confusing SAR requirement for an unregistered MSB
Acquirers and their sponsor financial institutions are subject to stringent anti-money laundering (AML) and counter-terrorist financing (CTF) regulations. They have a legal obligation to ensure that their merchant clients comply with relevant laws, including the Bank Secrecy Act (BSA) in the United States. But what happens when a Payment Service Provider (PSP) or Payment Facilitator (PFAC) is required to file a Suspicious Activity report when it is not a registered Money Service Business (MSB)?
Why Do Acquirers Require SAR Filing?
Regulatory Obligations: Acquirers are required to implement effective AML compliance programs, which include monitoring their merchants for suspicious activities. By ensuring that MSBs—registered or not—file Suspicious Activity Reports (SARs), acquirers fulfill part of their own compliance obligations.
Risk Mitigation: Requiring unregistered MSBs to file SARs helps acquirers mitigate legal and financial risks. It demonstrates proactive steps in preventing the facilitation of illegal activities through their payment processing services.
Regulatory Reporting: Acquirers may need to file SARs if they detect suspicious activities. By requiring the Payment Service Provider to file as well, they ensure that all relevant information is reported to authorities, enhancing the effectiveness of AML efforts.
Consequences of Non-Compliance:
Legal Penalties: The acquirer and the unregistered MSB could face significant fines and legal actions for failing to comply with AML regulations.
Reputation Risk: Associations with unregistered and non-compliant businesses can harm an acquirer's reputation, affecting customer trust and regulatory relationships.
How do you solve this conundrum?
Work with a Sponsor who will allow the Payment Service Provider or Payment Facilitator to file the Suspicious Activity Report on their behalf. This addresses both compliance concerns and improves the relationship between the Sponsor Bank and the Third Party (MSB, PSP, PFAC) when working directly with the Merchant.
