It is inevitable that your Money Service Business (MSB) will eventually receive a much-anticipated (or in some instances, much-dreaded) Exam Engagement letter from one or more states. MSBs licensed in 40 or more states meet the eligibility for a coordinated multi-state exam, a program that enables multiple states to coordinate their examination efforts, aimed at reducing the administrative burden on the licensee. With a large multi-state exam, licensees typically receive notification at least two months prior to the commencement of the multi-state coordinated exam.
These examinations can encompass a wide breadth of business areas, including (but not limited to):
- Changes in ownership, control parties, and executive management
- Delegate and agent agreements (along with any associated onboarding and monitoring procedures)
- Disclosures and notices to customers
- Surety bond coverage
- Overall financial condition, safety, and soundness
- Permissible investments (including their quality and applicability)
- Periodic reporting and reconciliation of transactions to permissible investments
- Reporting of any regulatory actions
- An increasing number of information technology topics
- Disaster recovery plan/business continuity planning and testing
- FinCEN renewals
- Filing of Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs)
- Title 31, Chapter X, Bank Secrecy Act compliance
- Title 12, Remittance Rule adherence
- Gramm-Leach-Bliley Act considerations
- Compliance with the USA Patriot Act
Once the information has been collected, the interviews have been completed, and the participating states compile their individual state modules/respective components, a composite rating will be assigned. It is important to remember that receiving a “3” rating is not catastrophic – do not panic! A “3” merely indicates that there is room for improvement. You should also walk into your examination knowing that, although a “1” should be the goal, a "1" composite rating is rare. Many money transmitters fall within the "2" and "3" range.
But what do these ratings really mean?
Rating of a “1” (Strong overall Condition) - Money transmitters rated a composite “1” are sound in every respect and in substantial compliance with laws and regulations. Any findings or weaknesses noted are relatively minor and can be corrected in the normal course of business. If you receive a “1,” take a breath, celebrate what should certainly be considered a win, and keep moving forward with a focus on maintaining and upgrading your culture of compliance.
Rating “2” (Satisfactory Overall Condition) - Money transmitters rated a composite “2” are fundamentally sound and in substantial compliance with laws and regulations. Only moderate weaknesses are present and can be corrected in the normal course of business with management’s capabilities and willingness. If you receive a “2,” you are on the right track but still need to make some relatively minor enhancements.
Rating “3” (Marginal Overall Condition) - Money transmitters rated a composite “3” exhibit a combination of weaknesses that range from less than satisfactory to moderately severe, and violations of laws and regulations may be evident and/or recurring. The money transmitter may not be resistant to adverse business conditions. The money transmitter’s risk management practices may not be properly scaled to match the organization’s size, complexity, and risk profile. Recordkeeping and adherence to anti-money laundering policies and procedures may be deficient and less than acceptable. If you receive a “3” rating, it is time to buckle down and work on remediation; there are some larger issues present, but with the proper work, you can overcome them.
Rating “4” (Unsatisfactory Overall Condition) - Money transmitters rated a composite “4” exhibit serious weaknesses and/or violations of laws and regulations that may be recurring that cause its overall condition to be unsafe and unsound. Serious financial and/or managerial deficiencies may result in conditions that threaten the money transmitter’s viability. A rating of "4” indicates there is significant and urgent work needed to remediate identified issues and should be taken seriously.
Rating “5” (Poor Overall Condition) - Money transmitters rated a composite “5” exhibit critical weaknesses and a combination of other identified weaknesses and/or violations of laws and regulations that may be recurring that cause its overall condition to be considered extremely unsafe and unsound. The volume and severity of problems are beyond management’s ability and willingness to control and correct.
Now that you know what your exam rating means, you can effectively decide on a proper course of remediation.
Should your MSB receive an exam engagement letter, we invite you to reach out to us. Our team has decades of experience, and we are here to guide you through the process, along with assisting in addressing any findings that may arise as a result of the examination.
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© Copyright 2025. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
