A bureau of the U.S. Department of the Treasury June 21 proposed new rules that would deter money laundering and terrorist financing through nonbank-issued prepaid products such as closed-loop cards and mobile phones.
The Financial Crimes Enforcement Network said the new rules were developed in cooperation with law-enforcement and regulatory authorities.
Under the proposed rules, nonbank prepaid providers would be subject to the same Bank Secrecy Act regulations as financial institutions. The Bank Secrecy Act requires financial institutions to cooperate with government agencies to detect and prevent money laundering.
The proposed changes actually are mandated under the Credit Card Accountability, Responsibility and Disclosure Act of 2009.
“[We believe] this will address vulnerabilities in the current prepaid-access environment while maintaining the flexibility to permit new developments in technology, markets and consumer behavior,” James H. Freis Jr., the network’s director, said in a statement.
The bureau will continue to examine “other aspects of these complex products,” Freis added.
The proposed changes are needed to tackle regulatory gaps that have resulted from the increased use of prepaid products during the past 10 years, the bureau said in a statement. Failure to address the gaps may lead to increased potential for criminals to use prepaid products for money laundering, terrorist financing and other illegal activities, the group added.
The bureau “is trying to cover all their bases in terms of where they perceive criminal activity can still happen,” Ben Jackson, senior analyst with the prepaid advisory group at Mercator Advisory Group, tells PaymentsSource.
Among some of the major changes in the proposal is renaming “stored value” as “prepaid access” to allow for future changes in technology and prepaid products. The terms “issuer” and “redeemer” would be dropped in favor of “provider” and “seller.”
The bureau did not specify when the proposal rules would be approved and enacted. The organization did not respond to a request for comment.
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