Application of the Prepaid Access Rule to Bank-Controlled Programs

Overview

The Financial Crimes Enforcement Network (FinCEN) has issued a ruling clarifying that banks cannot be designated as providers of prepaid access under money services business (MSB) regulations. This impacts companies distributing bank-issued prepaid cards.

Key Insights

• Bank Exclusion from MSB: Banks cannot be designated as providers of prepaid access, a category under MSB regulations. This is because banks are excluded from being MSBs. (31 CFR § 1010.100(ff)(8)(i))
• Oversight and Control: If a bank exercises primary oversight and control over a prepaid access arrangement, no participant needs to register as the provider of prepaid access. (31 CFR § 1010.100(ff)(4))
• Seller of Prepaid Access: A company may still be considered a seller of prepaid access if it sells prepaid products that can be used before customer identification or exceed $10,000 in sales to one person per day without proper procedures. (31 CFR § 1010.100(ff)(7))

Why It Matters

This ruling is crucial for financial institutions involved in prepaid card programs, particularly those in retail banking, as it affects compliance and registration requirements.

Actionable Implications

• Review and adjust compliance programs to ensure alignment with FinCEN's ruling.
• Ensure that banks involved in prepaid card programs maintain primary oversight to avoid MSB registration.
• Implement robust procedures to prevent sales of prepaid access exceeding regulatory limits.