A dealer in foreign exchange is one of the categories of money services business (MSB) defined in US federal regulations administered by the Financial Crimes Enforcement Network (FinCEN). In broad terms the category reaches anyone who takes in one or more countries' currency, monetary instruments or funds and gives back those of other countries, where the amount for any single person exceeds $1,000 on any day, whether in one transaction or several and whether or not delivery is the same day.
The classic example is a bureau de change at an airport or a border town, but the definition also reaches online businesses and other firms that exchange currencies for customers. The category is defined by activity, not by the name of the business.
Legal definition and threshold
The definition sits in FinCEN's regulations implementing the Bank Secrecy Act (BSA), at 31 CFR 1010.100. The $1,000 threshold applies per customer per day, so a business that exchanges $600 for a customer in the morning and $500 in the afternoon crosses it. Banks and persons registered with the SEC or CFTC are excluded from the MSB definition, as they are supervised under separate regimes.
Dealing in foreign exchange is different from transmitting money. A money transmitter accepts value from one person and sends it to another person or location. A currency dealer exchanges one currency for another for the same customer. A business that converts a customer's dollars into euros and hands the euros back is a dealer in foreign exchange; a business that converts the dollars and pays the euros to a third party abroad is also transmitting money, which brings different federal obligations and, in most states, the need for a money transmitter license.
Federal obligations
- Registration. Dealers in foreign exchange must complete FinCEN registration within 180 days of starting business and renew it every two years. A business that acts only as an agent of another MSB is generally not required to register separately.
- AML program. Each must maintain a written AML program with a compliance officer, training and an independent review.
- Currency transaction reports. Cash transactions over $10,000 in a day require a Currency Transaction Report (CTR).
- Suspicious activity reports. MSBs must file a Suspicious Activity Report (SAR) on suspicious transactions of $2,000 or more.
- Recordkeeping. Dealers must keep records of currency exchanges above $1,000, including customer identification.
Breaking transactions into smaller amounts to stay under reporting or recordkeeping thresholds is structuring, which is itself a federal offense, and currency dealers are trained to watch for it.
State regulation
State treatment of currency exchange varies widely. Some states license currency exchange as a distinct activity or bring it within a broader money services statute, while others do not license pure currency exchange at all. A firm that also offers transfers, check cashing or prepaid access typically needs state licenses for those activities. Businesses therefore map each product against both the federal MSB categories and each state's law; a check casher that also exchanges currency may fall into two federal categories at once.
Business model and risks
A currency dealer earns money from the FX spread between its buying and selling rates and from any commissions. It needs a reliable supply of foreign banknotes, usually through wholesale banknote dealers or banks, and must manage inventory risk as rates move.
The main compliance risks are cash-intensive money laundering, structured transactions and exchanges for customers who cannot explain the source of funds. Exchanging small denominations into large ones, or into high-value notes of another currency, is a long-recognized red flag because it makes bulk cash easier to move. Firms located outside the United States that offer currency exchange to US customers may also fall within FinCEN's rules as a foreign money services business.