Deciding on which countries to expand your business to can be a complex and difficult decision. As an aspiring entrepreneur, you might have heard of the lucrative business environment for MSB in Canada and might be wondering about the obligations to consider when starting a money services business as well as the process of registering for a money services business (MSB) license successfully.
If you have been considering beginning a money transfer business from Canada, you are well aware of the challenges of getting started in the territory of the maple leaf! Obtaining a license will be your first task before starting a money services business in Canada. In this article, Tetra Consultants’ team of licensing experts has outlined important business considerations for starting and operating a money service business in Canada and obtaining a Canada MSB License so that you may better understand this business phenomenon and make a more informed decision about whether you should register for Canada MSB License as well.
However, first and foremost, before going into the obligations and process of registering for a Canada MSB License, it is crucial to understand what exactly a Canadian MSB License is, as well as its applications to various business entities and industries
Who are considered Money Services Business (MSB) providers in Canada?
In Canada, MSBs are regarded as reporting entities by the legislation. This implies that they have to follow specific rules and comply with their regulator. If your company provides any of the following services to the general public, you are a money services business (MSB) in Canada:
- Foreign exchange dealing;
- Remitting or transmitting funds;
- Issuing or redeeming money orders, traveler’s cheques, and other negotiable instruments;
- Dealing in virtual currencies.
In the past, foreign MSBs only had to comply with Canadian AML requirements if they had a “real and substantial connection” to Canada. A “real and substantial connection” was defined in Financial Transaction and Report Analysis Centre of Canada (FINTRAC) policy interpretations as having one or more of the following statements be true:
- Is the business incorporated in Canada;
- Does the business have agents in Canada;
- Does the business have physical locations in Canada; and/ or
- Does the business maintain a bank account or a server in Canada.
However, as part of the recent AML amendments, foreign businesses conduct any of the above transactions, and your services are directed to persons in Canada, Canadian AML obligations will apply. You will need to be aware of the requirements under Canadian law as they apply to their Canadian customers.
Impact of Recent amendments on Canada MSBs
- The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or PCMLTFA, and the related rules were updated by the Canadian government on June 1st, 2021, altering the responsibilities of Canadian money service businesses.
- As known, before beginning operations in Canada, you must register your money service business with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and uphold certain obligations under the Act. The new amendments now require business dealing in virtual currencies to also register as MSBs with FINTRAC, and likewise impose new obligations on foreign money service businesses, business relationships, ongoing monitoring, beneficial ownership, politically exposed persons, etc.
- Given the highly regulated nature of MSBs and FMSBs in Canada, it is crucial to understand what is required of you as an owner, prior to starting your business. Tetra Consultants has compiled a brief overview and guide to registering your business and complying with necessary obligations for starting and operating a money service business in Canada.
What are the obligations required to be complied with to register as an MSB with FINTRAC?
As an MSB and FMSB, you must have certain structures in place, and abide by certain requirements, under the Act. These obligations include the following:
Compliance Program
- Every MSBs to be registered in Canada must have a compliance officer and the program must be in place. The compliance program is designed to make sure your company is adhering to the commitments and requirements set forth in the PCMLTFA and related Regulations. Your compliance program must be directed by a designated compliance officer who administers the program and is either a senior manager, owner/operator, or someone at the senior level who has direct access to senior management and the board of directors. If your company is a sole proprietorship, your CO could be you or someone else. However, in larger businesses, your CO should not be personally involved in the receiving, transfer, or payment of funds.
- Additionally, you must create and implement written compliance policies and procedures, assess your company’s risk of engaging in money laundering or terrorist activity financing offenses, create, implement, and maintain a compliance training program for employees and agents, and review the compliance program’s effectiveness every two years.
Client Knowledge
- For some services, the PCMLTFA and related Regulations impose “Know your Client” obligations. Large cash and virtual currency transactions, suspicious transactions, the issuance or redemption of traveler’s checks, money orders, or other similar instruments valued at $3000 or more, the transmission of more than $1000 using a method other than an electronic funds transfer, information records, etc. are just a few examples of these activities. In these situations, MSBs are required to use measures outlined by the PCMLTFA to confirm the identification of the people or entities involved in these transactions.
- Additionally, if you often need to confirm a client’s identification, you must establish a commercial relationship with them, which entails particular record-keeping and continuing monitoring obligations. MSBs and FMSBs must also maintain accurate records of beneficial ownership, as hiding this information is a common method employed in money laundering and terrorist funding schemes.
- Similar to the previous example, these kinds of schemes may be carried out through third parties as a means of avoiding detection, therefore MSBs must be aware of whether a third party is involved and when to make a third-party judgment. Finally, political insiders and leaders of international organizations who are participating in the transaction must be disclosed to MSBs and FMSBs because they trigger extra Statutory obligations.
Reporting
- Among the transactions that MSBs are expected to disclose to FINTRAC include suspicious transactions, significant cash transactions, major virtual currency transactions, electronic financial transfers, and reports of terrorist property. For submissions, such as big virtual currency transaction reports and incoming or outgoing electronic funds transfer transactions should be intimated to the regulator within 24 hours or less.
Record Keeping
- MSBs and FMSBs must keep certain records. These include the following: a copy of every report sent to FINTRAC; large cash transaction records; large virtual current transaction records; records of transactions of $3000 or more; records of remitting and transmitting $1000 or more in funds (in means other than e-transfer); records of e-transfers of $1000 or more; records of virtual currency transfers equivalent to $1000 or more; foreign currency exchange transaction tickets; virtual currency exchange transaction tickets; internal memos about MSB/FMSB services; and service agreement records.
Travel Rule
- Regarding electronic funds transfers or virtual currency transfers, financial entities, MSBs, FMSBs, and casinos must ensure that certain information is sent or received. This information includes the name, address, and account number (or other reference numbers) of the client requesting it, the name and address of the beneficiary, and their account number/reference number (if applicable).
Ministerial Directives
- Registered businesses under FINTRAC must also comply with any directives issued by the Ministry of Finance. FINTRAC will inform reporting entities that a directive has been issued, and likewise has the authority to monitor and assess your compliance with these directives.
How to apply for an MSB license?
The steps to apply for MSB are as follows:
- Registration and incorporation of a company in Canada.
- Registration with FINTRAC
- Corporate bank account opening
- Completing registration with FINTRAC
Conclusion
- As a result, there are numerous compelling reasons to establish an MSB in Canada. Because this jurisdiction has a favorable worldwide image, new businesses are practically certain to be regarded as trustworthy, which is critical when dealing with the financial sector. If you make a favorable decision, you may obtain an MSB license in Canada with the assistance of our professionals.
- As navigating the country of Canada’s complex business climate as a firm intending to provide a range of financial services and in need of a Canada MSB License might be a challenging process – a hassle to say the least. As such, Tetra Consultants hopes that this article has provided you with a much better understanding of business considerations when starting and operating an MSB in Canada so that you can truly decide on whether you should do so yourself. So, what are you waiting for?
- Contact us to find out more about the process of Canada company registration and obtaining an MSB license, and our dedicated and experienced team will respond within the next 24 hours. Tetra Consultants will not only empower you by helping to navigate the different regulations of Canada but also aid in facilitating the registration of your company there while providing invaluable, nuanced insights into any potential challenges.
