FFIEC BSA/AML Examination Manual

Prepaid Access — Overview

Prepaid Access - Overview Objective. Assess the adequacy of the bank’s systems to manage the risks associated with prepaid access products, and management’s ability to implement effective monitoring and reporting systems. Prepaid access is defined as access to funds or the value of funds that have been paid in advance and can be retrieved or transferred at some point in the future through an electronic device or vehicle, such as a card, code, electronic serial number, mobile identification number or personal identification number. 218 Banks often rely on multiple third parties to accomplish the design, implementation, and maintenance of their prepaid access programs. These third parties may include program managers, distributors, marketers, merchants, and processors. Some banks that offer prepaid access products do so as the issuing bank. In addition to issuing prepaid access, banks may participate in other aspects of a prepaid program such as marketing and distributing products issued by another financial institution. FinCEN regulations define certain non-bank providers and sellers of prepaid access as money services businesses (MSBs). Prepaid access can be issued in an electronic or physical form and linked to funds held in a pooled account. Consumers use both electronic and physical prepaid products to access funds held by banks in pooled accounts that are linked to subaccounts. The growth of prepaid access as a financial tool continues to flourish. While prepaid cards are the most well-known and popular products used by consumers at this time, prepaid access products are continuing to evolve. This section is intended to address prepaid card relationships as well as other types of prepaid access. Guidance on risk factors and risk mitigation for prepaid cards is based on current practice and is not intended to exclude other types of prepaid access. Prepaid Cards Prepaid access can cover a variety of products, functionalities, and technologies. Physical access, issued in the form of prepaid cards, is currently the most popular form and is widely used for payments by governments, businesses and consumers. Most payment networks require that their branded prepaid cards be issued by a bank that is a member of that payment network. Prepaid cards operate within either an “open” or “closed” loop system. Open loop prepaid cards can be used for purchases at any merchant that accepts cards issued for use on the payment network associated with the card and to access cash at any automated teller machine (ATM) that connects to the affiliated ATM network. Examples of open loop prepaid cards include payroll cards, general purpose reloadable (GPR) cards, and certain gift cards. Some prepaid cards may be reloaded, allowing the cardholder or other person (such as an employer) to add value. Closed loop prepaid cards generally can only be used to buy goods or services from the merchant issuing the card or a select group of merchants or service providers that participate in a specific network. Examples of closed loop prepaid cards include merchant-specific retail gift cards, mall cards, and mass transit system cards.

218 31 CFR 1010.100(ww).

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