MSB Risk Assessment on Business Loan Customers?

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Question:

We recently completed a MSB risk assessment on deposit customers. However, we are now wondering if we should have included business customers who only have a loan relationship with the bank. Should we have included these customers as well?

Answer:

None of the guidance distinguishes between MSB depositors vs. borrowers. My suggestion would be that your documentation requirements would be the same for a lending customer as they are for a deposit customer including verifications of registration & licensure and conducting a risk assessment.

There would not be any realistic opportunity to monitor activity. (Obviously, you should notice if the MSB makes loan payments in cash or repays the loan more rapidly than their projected income would suggest was possible.) I believe it is a “best practice” to require MSBs to centralize their banking relationships; i.e. if you want the loan, you should want the transaction accounts too. If you don’t want the transaction accounts, maybe you should not want the loan.

Please consider: If this customer maintains an acceptable lending relationship for years and then wants to open a deposit account and you determine that they have been operating in violation of state and federal law for the entire period then what would you do?

First published on BankersOnline.com 1/23/06