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Entering into a business partnership can bring additional capital, experience, and opportunities for growth. It can also introduce compliance and operational risks that MSB owners need to understand before entering into an agreement.
A prospective partner’s involvement with other MSBs, including regulatory or compliance issues associated with those businesses, should be part of that consideration.
This is particularly important for owners who invest in an MSB but are not involved in its day-to-day operations. Responsibilities may be delegated to partners, employees, or compliance personnel, but owners should still understand how the business is being managed and whether its compliance obligations are being met.
A potential partner’s experience and financial contribution are only part of the picture. Their ownership, management responsibilities, and involvement with other businesses may also be relevant.
Surety Bank conducts regulatory checks as part of its ongoing review of MSB relationships. These checks may identify regulatory actions involving other businesses connected to individuals associated with the MSB. Issues outside of your own business can affect your banking relationship, making it important to understand a potential partner’s broader business and regulatory history.
Understanding these connections before entering into a partnership can help identify potential concerns early.
Some MSB owners provide the capital to establish or acquire a business while relying on a partner to manage daily operations. That arrangement does not eliminate the need for owner involvement.
Owners should have a reasonable understanding of the MSB’s operations, compliance program, financial activity, and internal controls. They should know who is responsible for compliance, how activity is monitored, and how compliance concerns are addressed.
Relying entirely on someone else to manage these responsibilities can make it more difficult to recognize problems before they become significant.
Delegating responsibility should not mean giving up oversight.
An MSB’s compliance program can provide valuable insight when considering an investment or partnership.
Independent reviews can identify weaknesses and areas requiring corrective action. Prospective owners should look beyond whether a review was completed and consider its findings, recommendations, and any corrective actions taken.
The quality of the review matters as well. It should provide enough information to understand what was evaluated and whether meaningful concerns were identified.
If a prospective owner or investor is unfamiliar with MSB operations and compliance requirements, consider seeking guidance from an independent professional with experience in the MSB industry. This can help the investor understand what information to review and what potential concerns to look for before moving forward.
Ownership and authorization information should accurately reflect the current structure of the business.
Someone may be involved in operating or funding an MSB without being an owner or authorized signer on its bank accounts. Changes in ownership, management, or account authority may also not be known to the bank unless they are communicated.
Make sure the information provided to Surety Bank remains current, and communicate changes promptly.
Due diligence should not end once a partnership is established. Owners should remain informed about the operation of the business and maintain appropriate oversight of the people responsible for managing it.
The right partnership can bring valuable experience and opportunities to an MSB. But in a highly regulated industry, knowing who you are doing business with and understanding how your MSB is being operated are important parts of protecting your investment.
Taking the time to ask questions, review the appropriate information, and stay involved can help identify potential issues before they create larger compliance, operational, or banking concerns.
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