Our services for this group include regulatory compliance consultations, business planning, regulatory aspects of new services, and structured transactions.

• Major issues regularly consulted upon or attended to by this practice group in 2006 included:

  Regulatory Updates for Debit Card Processors

  Presentation at Pelorus Group 2006 Boston Conference

  ISO business planning and consultation for niche products targeting charitable contributions

  ISO product development (in light of new regulations) for Payroll Card Program

  Development of Website policies to target Reg-E online transactions from Parent SVC

  Consultation on ethical hacks of financial debit card service platform

  • Stored Value & Banking Laws:
    In general, Stored-Value services and products are considered a non-bank financial activity for regulatory and business purposes. This is in large part due to the money being held, not as a demand depository account of the consumer, thereby implying that providers and their issuing locations may be engaging in branch banking for regulatory purposes. Recent considerations of REG-D by the FDIC have also placed Stored-Value potentially being somewhere between a depository account and a money service business. In this environment of regulatory ambiguity, the Stored-Value practice group assists its clients with considerations of money-transmitter licensure, the benefit of utilizing depository accounts, and compliance with Internet pay systems and programs. The Group’s focus is to properly define the client’s service, and legal and regulatory responsibilities, in the wake of changing classification under banking law, and thereafter advise.
    
    A good example of this type of approach is found with recent developments with Regulation-E and the Federal Reserve Bank. REG-E is a proposed regulation wherein the FRB would require disclosures, in writing, as to account information on a regular basis. Within the constructs of regular bank depository accounts such a requirement has little burden. In the arena of Stored-Value Cards, the implication of REG-E can be burdensome as open-loop and closed-loop cards are often issued to the general public with only initial identification verification, and the inability to regularly check, or update, changes of address and movement of the consumer. Consumer funded and re-loadable PIN-based products is a good example of this as it will be more difficult to identify the card purchaser, or require that information at the time of charging cards with pre-payments. Similarly Closed-loop cards, such as gift cards or merchant cards, would be required same periodic statement disclosures as if financial institution under REG-E. Problematic for the Gift Card Providers is identifying the Gift Card purchasers AND gift card receiver if periodic statements were mandatory for Gift Cards. The Practice Group has taken an aggressive stance on REG-E encouraging clients, and those in the industry, to voice opposition. In the meanwhile, the Practice Group has focused on advising clients as to potential policies, technologies and operational methods as contingency planning for REG-E requirements.
    
    Stored Value & Anti-Money Laundering
    A part of the Practice Groups focus is to assist our clients in developing cost-effective and complaint Anti-Money Laundering compliance policies and programs, based upon their unique service. In general, the US Dept. of Treasury Financial Crimes Enforcement Network, commonly called FinCEN, is the primary agency responsible for regulating the reporting and investigation of money laundering in connection with Stored-Value Systems and Cards. Effective July 22, 2002 FinCEN’s regulations and rules incorporated the US Patriot Act Title III, a provision of the reinforcing and strengthening already existing provisions of regulation and reporting by virtue of the International Money Laundering Abatement and Anti-Financing Act of 2001, Bank Secrecy Act and Money Laundering Act of 1986. The implication of the Act to Stored-Value is clear. The Patriot Act requires financial institutions and other parties engaging in financial transaction (such as Stored-Value Providers), to compare its customers with lists of suspected terrorists periodically released by the Office of Foreign Asset Control and notify OFAC of it a transaction appears suspicious. The Patriot Act also requires financial institution liable for reporting to implement an adequate compliance program of self-reporting. These types of programs include: verifying customer identification, filing reports to OFAC, creating and retaining records, responding to law enforcement requests, designate a compliance officer, ongoing training and an independent audit to test and review compliance program. All of these are facets of compliance that the Stored-Value Practice Group stands ready to assist our clients with in the arena of Anti-Money Laundering compliance.
    
    Money-Service Business Laws
    For those clients who offer open-loop systems and Stored-Value cards, the implication of regulation as a Money-Service Business is a fundamental consideration to offering their services. The source of this regulation is found in registration and reporting requirements of the Bank Secrecy Act, 12 USC § 1951 which is generally applied to financial institutions defined in 31 USC § 5312 (a)(2) and “Money Service Businesses.” Most Open-loop Stored-Value cards fall under these definitions and most Closed-loop Stored-Value cards do not.
    
    The Registration requirement is at both federal and state levels. The MSB must register with the Department of Treasury in addition to any applicable state licensure, which can vary from state-to-state. The MSB must also file an agent list with a designated IRS Computing Center listing all the MSB’s registered agents. The MSB is also required to file regular Suspicious Activity Report-Money Service Businesses (the SAR-MSB) within 30 days of discovery of “any suspicious transaction relevant to a possible violation of law or regulation.” Such activity usually involves transactions above a prescribed value by the same person on the same day, in a sequence, or purchasing the same item repetitively.
    
    The Stored-Value Practice Group works hard with our MSB clients to identify states that need registration as an MSB, developing solid policies for Suspicious Activity Reporting, and keeping registrations and agent lists up-to-date. Particular attention is paid to our MSB clients at the state level as there are civil and criminal penalties for non-compliance under the Money Laundering Suppression Act of 1994 (MLSA) Pub. L. No. 103-325, 108 Stat. 2160, 2243). Specifically, Section 407 requires states to promulgate civil and criminal penalties for MSB who fail to comply with the currency reporting requirements of the federal Bank Secrecy Act. More that 44 states have enacted laws regarding “sale of payment instruments” and “money transmission”.
    
    State Unclaimed Property and Escheat Laws
    All the US states have enacted laws that address the rights and responsibilities of persons holding unclaimed property. In large part, these statutes define the reporting and remittance requirements of each individual state. The implication of these varying statutes for Stored-Value services is daunting as Gift Cards, Payroll cards, or re-chargeable debit cards as they may be lost or misplaced by the consumer, or the consumer may move out of state or country without any forwarding information. The bottom line is that should a particular state’s escheat laws apply to your service, remission of unclaimed funds to the state and reporting of those funds is a must for the Stored-Value provider. The Practice Group educates its clients on the escheat laws applicable to their services and develops policies and procedures to avoid needles tug-of-war battles between the provider and the state.

Our services for this group include regulatory compliance consultations, business planning, regulatory aspects of new services, merger and acquisitions, retailer POS contracts, and structured transactions for POS networks.

• Major issues regularly consulted upon or attended to by this practice group in 2006 included:

  Earn-Out of POS network in structured merger

  Drafting transactional agreements between Utility Companies and POS network to allow POS network to serve as pay agent

  Structured Expansion of DIDs into POS network

  Defense of branded Service marks within a POS distributions network

  Structuring branding for alternative payment system

  Contact us today at (305) 468-1645 or via e-mail at info@maldonado-group.com for questions or representation