The Wall Street Journal reports today that FinCEN issued a confidential report warning that credit unions are vulnerable to increased risk as a result of money services businesses moving from banks to credit unions. The Journal identifies de-risking by banks, in which MSBs “have been driven away from big global banks,” as causing a migration of MSBs from banks to credit unions. FinCEN’s report is quoted as warning, “criminal groups and drug trafficking organizations may be actively targeting vulnerable credit unions to access the formal financial system.”
The Journal reports that 50 credit unions were identified in FinCEN’s report as facing increased risk. One such credit union is Actors Federal Credit Union, which stated that they “visit prospective clients’ offices, examine the business’s anti-money-laundering training and interview staffers. It also has an internal committee on these customers that meets weekly and includes the credit union’s president.”
The cause for FinCEN’s concern is that it believes that these smaller financial institutions “may not be as good at spotting illicit activity and reporting it to authorities.” The article details several cases where credit unions faced increase scrutiny from regulators as a result of banking MSBs.
This article is similar to one last week, which I commented on here. It appears that FinCEN may be worried that de-risking by larger banks is increasing the overall risk to the financial system, as smaller institutions are tasked with banking the riskiest customers.