Canada MSB License (Money Services Business)

Canada MSB License (Money Services Business)

Tetra Consultants assists our international clients in securing a Canada MSB License (Money Services Business). Amended in December 2001, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) has come into effect to deter financial crimes within the land of Canada.

With the aim of enhancing the regulatory framework for money services businesses, the act and regulatory requirement of securing a Canada MSB license serves to combat transnational crimes, particularly in money laundering and terrorist activities.

Introduction to Canada MSB License

• Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, your business is required to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). As of 1^st June 2020, foreign money services businesses are also required to register with FINTRAC and thereby, comply with their reporting and record-keeping requirements.

• Non-compliance with the Act may result in criminal or administrative penalties. Generally, non-compliance will be followed with an assessment by FINTRAC to determine a suitable response. Administrative monetary penalties are commonly used to address repeated non-compliant behavior, and facilitate future compliance with the Act.

• In extreme cases where non-compliance to the Act is extensive or otherwise deemed to be impossible, criminal penalties may ensue. Criminal penalties such as a fine or imprisonment can be issued under these cases.

When will you require a Canada MSB License?

Under the Act, a person must have in force a Canada MSB License (Money Services Business) to be entitled to carry on a business of –

#1: Providing one of the following services:

• Foreign exchange dealing;
• Money transferring;
• Issuing or redeeming money orders, traveller’s cheques or anything similar; and
• Dealing in virtual currency

#2: Providing direct services at persons or entities in Canada

• This will apply if you are directing your promotional materials to persons or entities located in Canada, operating a Canadian domain name or otherwise, have your business listed in any Canadian business directories such as Akama, Strictly Canadian, LiveBusiness and more.

• Otherwise, offering money transfer services, performing foreign exchange transactions for single transfers amounting to more than $1,000 with the same individual or entity can also be considered as a direct service.

#3: Providing these services to clients located in Canada

• The Act will also be applicable to your foreign business if you are providing services to clients whose address is in Canada, possess banking, credit card or payment processing service in Canada or identity is issued by a Canadian province or territory.

• It is also important to note that you will not be subjected to this Act if you are operating strictly as an agent for a money services business or acting as a reporting entity performing money services business activities while also running other related services.

• If you are unsure whether your Money Services Business requires the Canada MSB License, feel free to contact us for a non-obligatory consultation. Our team of experts will revert within the next 24 hours.

Mandatory requirements for Canada MSB License

MSB Registration with FINTRAC

• Typically, all businesses – foreign or local operating in the field of money services will be required to register with FINTRAC and obtain a relevant money service business license.

• Generally, if you are found guilty or involved in any money laundering offences or offences listed under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, Controlled Drugs and Substances Act or the Criminal Code, you will not be eligible.

• Alternatively, corporations, partnerships and other forms of entities with owners with share ownership of 20% or more are also not eligible.

• There are no registration fees imposed by FINTRAC.

• The registration process will require various KYC documents such as incorporation information, personal details about your business’ owners and senior management, number of employees, bank account information and more.

• For foreign businesses, a police record check will be instituted. You will also require to submit the name and address of a Canadian representative. The representative will be mainly in-charge of receiving notices and documents on behalf of your company and liaising with government authority.

• Upon completing the registration process, you should receive an approval notice and your registration number.

Compliance Program

• A FINTRAC examination will be conducted by the relevant authority to review if your business is following the required documentation processes and whether relevant employees or agents are trained sufficiently to maintain and upkeep with all reporting obligations.

• All Canada MSB License (Money Services Business) applicants will have to appoint a compliance officer who is mainly responsible to implement and review the program, plan and execute compliance policies, review mitigation measures and strategies as well as prepare a developmental program to ensure that all employees and agents involved in your money services business are trained sufficiently.

• Typically, the compliance officer can be yourself or another individual. For best practice and the purpose of securing a Canada MSB license, Tetra Consultants advises you to appoint a person who is not involved in the receipt, transfer or payment of funds. This would ensure that there is an active check-and-balance system in place.

• To ensure efficiency, a compliance officer is permitted to delegate duties to other employees. However, all responsibility for the implementation of the compliance program will fall onto the compliance officer.

• It is expected that the compliance officer appointed have the necessary knowledge and expertise in your business’ functions and structures, understand the risks and vulnerabilities as well as have the necessary capabilities to implement an effective program. The compliance officer should also be given the ability to report compliance-related issues to the board on a regular basis.

• The compliance officer appointed will also be responsible for reviewing the program biennially.

• Generally, the policies adopted should be comprehensive in managing your risk assessment activities, the measures undertaken, the ongoing compliance training program and a review about the effectiveness of the program.

• Other relevant details to include are KYC documents and transaction reports. It is also important that ministerial directives and transaction restrictions are documented. The level of detailedness will be dependent and varied according to the size, structure and complexity of your business.

• All compliance policies and procedures should be written in a form that permits access to all its intended audience. The policies and procedures should also be continuously updated to ensure relevancy. Any new policy planned should also be approved by a senior officer.

• When documenting your risk assessment, you can consider evaluating the mitigation measures undertaken. As for new products, it is expected that you consider and document any risks associated with it while collectively plan strategies to alleviate these risks.

• The development of an ongoing compliance training program should be done in writing, constantly reviewed and updated. For sole proprietorships, you are not required to have a training program but instead, you should be able to substantiate the availability of all other required factors needed to substitute a compliance program.

• The training program should be made available to front line staff or agents, employees involved in client transaction activities, handling cash or funds or senior managers and internal auditors overseeing the compliance program.

• A simple guideline for your training program would be to include comprehensive background information on money laundering and how the process works, the available compliance policies and procedures to prevent and detect such cases and the due responsibility of each employee. It should also be tailored to the nature of your business so that your employees and staffs will be able to correlate and recognize suspicious transactions.

• The biennial review can be conducted by an internal or external auditor who has sufficient knowledge of the Act and its associated regulations.

Verification of Clients’ Identity

• In every Canada money services business, understanding and knowing your client is fundamental.

• Subject to the Act and its associated regulations as well as the terms of obtaining a Canada MSB license, all money services businesses are mandated to verify their clients’ identity.

• Typically, the verification process would entail reviewing its name and address as well as the names of the corporation’s directors.

• This identification process is applicable when performing services such as,
  • Issuing or redeeming negotiable instruments of $3,000 or more;
  • Remittances or transmissions of $1,000 or more;
  • Foreign currency exchange of $3,000 or more;
  • Large cash transactions;
  • Suspicious transactions; and
  • Client information records

Reporting

• Canada MSB License (Money Services Business) holders are mandated under the Act to complete and file transactions and property reports.

• Should there be a reasonable amount of evidence to doubt the authenticity of a particular transaction, you have to submit a Suspicious Transaction Report as soon as possible.

• Otherwise, for big sums amounting to $10,000 CAD or more internationally, a report must be submitted within 5 business days.

Record Keeping

• Typically, all Canadia MSB license (Money Services Business) holders will have to maintain and safe keep records of suspicious transactions, large cash transactions, transactions of $3,000 or more, foreign currency exchange, ongoing service agreements.

• These records should be available for inspection by FINTRAC within 30 days upon request.

Types of reports to be filed for Canada MSBs

MSBs (Money Services Businesses) in Canada are subject to several reporting requirements. Here are some of the key reporting requirements for MSBs in Canada:

• Large Cash Transaction Reporting: MSBs in Canada are required to report cash transactions of $10,000 or more to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) within 15 days of the transaction. The Large Cash Transaction Report must be submitted to FINTRAC within 15 calendar days of the transaction being conducted. The report must include the following information:

• The date and time of the transaction
• The total amount of cash involved in the transaction
• The name and address of the person or entity conducting the transaction
• The type of transaction (e.g. sale of goods or services, loan repayment, etc.)
• The type of business the MSB is engaged in (e.g. money remittance, foreign exchange, etc.)

• MSBs are also required to keep records of large cash transaction reporting for a period of five years.

• Suspicious Transaction Reporting: MSBs are required to report any suspicious transactions to FINTRAC as soon as possible after they become aware of them. The Suspicious Transaction Report (STR) is a requirement under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) that applies to all financial institutions, including MSBs, in Canada.

• Under this requirement, MSBs must report to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) any transaction that they have reasonable grounds to suspect is related to money laundering or terrorist financing. An STR should be filed as soon as possible after the MSB becomes aware of the transaction or attempted transaction. The report must include the following information:

• The name, address, and other identifying information of the person or entity conducting the transaction
• The date and time of the transaction
• The amount and type of funds involved in the transaction
• The nature of the transaction and any supporting documentation
• Any other relevant information that may assist in identifying the transaction or the parties involved.

• MSBs are also required to keep records related to suspicious transactions for a period of five years.

• Terrorist Property Reporting: Canadian MSBs are required to report any property they have reason to believe is owned or controlled by a terrorist or terrorist group to FINTRAC. Under this requirement, MSBs must report to the Royal Canadian Mounted Police (RCMP) any property that they have reason to believe is owned or controlled by or on behalf of a terrorist or terrorist group. This includes both tangible and intangible property, such as cash, securities, or intellectual property.

• The reporting requirement is triggered when an MSB has reasonable grounds to suspect that property is terrorist property, based on information that comes to their attention in the course of their business. The report must be made to the RCMP as soon as feasible after the suspicion arises.

• The report should include as much information as possible about the property and the suspected terrorist or terrorist group, including their name, address, and any other identifying information that is available. MSBs should also take steps to prevent the transfer of terrorist property, freeze the property, and cooperate with law enforcement agencies in any investigation related to the property.

• Cross-Border Currency and Monetary Instruments Reporting: MSBs are required to report the physical cross-border transportation of currency or monetary instruments valued at $10,000 or more to the Canada Border Services Agency (CBSA).

• Under this requirement, individuals must report to the Canada Border Services Agency (CBSA) if they are carrying or transporting currency or monetary instruments worth $10,000 CAD or more. Currency and monetary instruments include cash, bank drafts, traveler’s checks, and securities or negotiable instruments in bearer form.

• The reporting obligation applies to all modes of transportation, including land, air, and sea. Individuals must declare the currency or monetary instruments at the time of entry or departure by completing a Report on the Cross-Border Movement of Physical Currency and Monetary Instruments (Form E677).

• The cross-border transportation of currency or monetary instruments reporting requirement is designed to prevent the illegal movement of money across borders, such as money laundering, terrorist financing, or other criminal activities. Failure to comply with the cross-border transportation of currency or monetary instruments reporting requirement can result in the seizure of the currency or monetary instruments, as well as fines and penalties.

• Large Virtual Currency Transaction Reporting: The requirement for Large Virtual Currency Transaction Reporting for MSBs in Canada was introduced in 2020 as part of amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

• Under this requirement, MSBs that deal in virtual currencies, including buying, selling, or transferring them, must report any transactions of $10,000 CAD or more to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) within five working days. The report must include the following information:

• The date and time of the transaction
• The type and amount of virtual currency involved in the transaction
• The exchange rate used to determine the Canadian dollar value of the transaction
• The identity of the customer initiating the transaction, including their name, address, and date of birth
• The identity of the recipient of the virtual currency, including their name and address.

• MSBs are also required to keep records of large virtual currency transactions for a period of five years.

• Electronic Fund Transfer (EFT) Report: The Electronic Fund Transfer (EFT) Report is a requirement under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) that applies to all financial institutions, including MSBs, in Canada.

• Under this requirement, MSBs must report to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) any EFT that is $10,000 or more, whether conducted in a single transaction or a series of transactions that are related to each other. The EFT Report must be submitted to FINTRAC within five working days of the EFT being sent or received. The report must include the following information:

• The date and time of the EFT
• The amount of the EFT
• The name and address of the person or entity sending the EFT
• The name and address of the person or entity receiving the EFT
• The type of account from which the EFT was sent
• The type of account to which the EFT was received
• Any other relevant information that may assist in identifying the transaction, such as a transaction reference number or invoice number.

• MSBs are also required to keep records of Electronic Fund Transfer (EFT) for a period of five years.

• Travel Rule: The travel rule is a requirement under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) that applies to all financial institutions, including MSBs, in Canada. The travel rule requires MSBs to include specific information about the originator and beneficiary of a wire transfer when sending or receiving funds on behalf of their customers. Under the travel rule, MSBs must include the following information in wire transfer instructions:

• The name and address of the originator of the wire transfer
• The account number of the originator (if available)
• The name and address of the beneficiary of the wire transfer
• The account number of the beneficiary (if available)
• This information is intended to help identify and trace suspicious transactions that could be linked to money laundering or terrorist financing.
• It Is important to note that the travel rule requirements apply to all wire transfers of $1,000 CAD or more. MSBs are also required to keep records of wire transfer instructions for a minimum of five years.

Record Keeping

• Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), MSBs in Canada are required to maintain records related to their financial transactions for a period of at least five years. These record-keeping requirements are designed to help prevent money laundering, terrorist financing, and other illegal activities. MSBs are required to keep records of the following:

• Customer information: MSBs must keep records of their customer’s names, addresses, and other identifying information, as well as copies of identification documents.

• Transaction information: MSBs must keep records of all financial transactions they conduct, including the date, amount, and nature of the transaction, as well as any supporting documentation.

• Suspicious transaction reports: MSBs must keep records related to any suspicious transaction reports they file with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

• Large virtual currency transaction reports: MSBs must keep records related to any large virtual currency transactions they report to FINTRAC.

• Electronic funds transfer reports: MSBs must keep records related to any electronic fund transfers they report to FINTRAC.

• Large cash transactions reports: MSBs must keep records related to any large cash transactions they report to FINTRAC.

• MSBs must keep these records in a manner that allows them to be easily retrieved and provided to FINTRAC upon request. The records must also be kept in a secure manner to prevent unauthorized access or tampering. These records should be available for inspection by FINTRAC within 30 days upon request.

Penalties for Non-reporting

• MSBs in Canada are subject to penalties and fines for non-reporting or failure to comply with the reporting requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). The penalties for non-reporting or failure to comply with reporting requirements can include:

• Administrative monetary penalties (AMPs): FINTRAC, the regulatory body responsible for enforcing the PCMLTFA, can issue AMPs for non-compliance. The amount of the AMP varies depending on the nature and severity of the non-compliance and can range from $1 to $100,000 CAD per violation for individuals, and up to $500,000 CAD per violation for corporations.

• Criminal penalties: In cases of willful non-compliance or egregious violations, MSBs and individuals can be subject to criminal penalties, including fines and imprisonment.

• Revocation of registration: FINTRAC can also revoke an MSB’s registration if it finds that the MSB has engaged in serious non-compliance or violations of the PCMLTFA.

• Reputation damage: Non-compliance can also result in significant reputational damage, which can lead to loss of customers and business.

• Given the potential consequences of non-reporting or failure to comply with reporting requirements, it is important for MSBs to establish and maintain effective compliance programs and ensure that their employees are trained on their obligations under the PCMLTFA. This includes implementing policies and procedures for record-keeping, reporting, and risk assessment, as well as conducting regular internal audits to ensure ongoing compliance.

Timeline to secure Canada MSB License

• Generally, you can expect your Canada MSB license (Money Services Business) application to take minimally 1 month. Each application will be reviewed individually, and they may revert asking for additional supporting documents or information.

• For example, a clarification request may be reverted if the information previously provided is missing, incomplete, or inconsistent. Upon receiving a clarification request, you will have 30 days to make the necessary amendments or to verify the information submitted previously.

What are the documents required to apply for an MSB license in Canada?

To apply for a Money Services Business (MSB) license in Canada, the following documents are typically required:

• Business registration documents: This includes documents that prove your business is registered with the appropriate government agencies, such as Articles of Incorporation, Business Registration Certificate, and Business License.

• Identification documents: This includes government-issued identification for all individuals associated with the business, such as passports, driver’s licenses, and birth certificates.

• Business plan: This should include a detailed description of your business operations, target market, competition, and financial projections.

• Compliance program: This should include a written description of the policies and procedures that your business has in place to comply with anti-money laundering and counter-terrorism financing regulations.

• Financial statements: This includes current financial statements, such as balance sheets and income statements, and projected financial statements for the next two years.

• Criminal record checks: This includes criminal record checks for all individuals associated with the business.

• Surety bond: Some provinces require MSBs to provide a surety bond as a condition of licensing.

• It is important to note that the specific documents required may vary depending on the province or territory where your business operates. Additionally, you may need to provide additional documents or information during the licensing process as requested by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

How to obtain a Canada MSB License?

• Tetra Consultants will assist you in registering a Canadian company by providing a local company address, local nominee director and local company secretary. Typically, this process should take approximately 2 weeks.

• Upon registering the company, we will proceed to open a corporate bank account with a reputable local or international bank. You can expect your corporate bank account to be ready in 4 weeks.

• Concurrently, our dedicated team of consultants will assist you in registering with FINTRAC through its online portal. Typically, this will require going through a pre-registration process submitting various KYC documents such as your business number, email address, and more.

• Following, we will submit your registration form for obtaining the money service business license by detailing your bank account information, information about your compliance officer, number of employees, incorporation information, and more. For foreign businesses, you can expect a police check record. Should the police check record require translation, we will review and translate the document into English for your perusal.

• FINTRAC requires that every company provides the name and address of a Canadian representative. If so required, we will appoint a fit and proper representative to receive notices and documents on your behalf.

• Afterward, our team of consultants will assist you in preparing a comprehensive business plan as well as plan a compliance program. The business plan and compliance program will be drafted in writing for your further review and in accordance with the Act and associated regulations imposed by FINTRAC.

• As all companies applying for a Canada MSB license require a compliance officer, Tetra Consultants will also assist in recruiting a fit and proper compliance officer. The compliance officer will also be equipped with the necessary knowledge about the Act and its associated regulations to ensure that your business remains compliant.

• Developing and applying written compliance policies is fundamental in upkeeping the Canada MSB license. Our team will review the adopted compliance policy and advise you on how you can more effectively update and improve the compliance program. We will also assist you with the drafting of an effectiveness review of the compliance program.

• Prior to a FINTRAC examination, Tetra Consultants will also advise you on how you can update the required documentation or improve on the existing compliance program. This is to ensure that your business remains capable of addressing all money laundering or financial crime threats.

Find out more!

• Tetra Consultants is a one-stop corporate service provider with a global network of partners and a diversified portfolio of businesses. We provide extensive assistance to our international clients with securing a Payment License like a Canada MSB license. Our service package for securing a Canada MSB license includes the incorporation of the entity, preparation of the license application, creating a comprehensive timeline for the full setup and operation of your entity, drafting the needed documents, and gathering relevant and acceptable data.

• In addition, Tetra Consultants can also assist with attaining other offshore financial licenses depending on your long-term business goals.

• Contact us to find out more about how to secure Canada MSB License to conduct Money Services Businesses. Our team of experts will revert within the next 24 hours.

FAQs

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