MSB Registration in Canada

Canada is a highly attractive jurisdiction for money services businesses (MSB) and companies engaged in innovative financial activities.

This popularity is driven by:

• a stable economy;
• government investment support for the industry;
• lenient regulatory oversight by FINTRAC;
• flexible requirements for applicant companies;
• compliance with global regulatory standards;
• high level of legal protection in this jurisdiction;
• a fast and straightforward process for obtaining an MSB license.

A Money Services Business License in Canada is a specific type of license that allows firms to provide various financial services. However, money services businesses are not considered banking institutions.

An MSB license in Canada is a mandatory requirement for such companies. It is issued by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which regulates and oversees the activities of all business entities holding such licenses.

Benefits of an MSB in Canada

The MSB license ensures the integrity of the Canadian financial system and protects consumer rights.

Key benefits include:

1. Legality: the license allows businesses to legally offer financial services within the jurisdiction.
2. Client and Partner Trust: holding a license demonstrates full compliance with Canadian norms and laws.
3. Safety: MSB operations require the implementation of specific risk management measures, which help protect clients from fraud and financial crimes.

Additional advantages for companies holding an MSB license include:

1. Fast Track to Market for MSBs in Canada

The entire process of obtaining a Money Services Business License in Canada takes just a few months, significantly faster than in many other jurisdictions. This allows companies to start their legal operations and generate revenue sooner.

2. Canada: A Welcoming Environment for Global MSBs

A license obtained in Canada allows companies to operate globally, with the exception of countries that have mandatory local licensing requirements. This makes it an ideal option for startups aiming to enter the global financial services market quickly and cost-effectively.

Company registration in Canada and obtaining an MSB license not only enable you to expand your influence globally but also enhance your company’s credibility.

3. Flexible Location Requirements for Canadian MSBs

Companies registered in Canada need an MSB license. Additionally, businesses can obtain an FMSB (Foreign Money Services Business) license to operate outside the country while providing services in other jurisdictions. Although the core business activities remain the same, this offers an excellent opportunity to eventually enter the Canadian FINTRAC market with a fully operational business.

Services Offered by Canadian MSBs

Currently, the most popular services provided by MSBs in Canada include:

• money transfers;
• currency exchange operations;
• cryptocurrency transactions.

Additionally, an MSB license allows for services related to payment instrument circulation, account opening, card acquiring, and crowdfunding activities.

Open Payment Accounts

Companies holding an MSB license can offer services for creating accounts within Canadian and international payment systems.

Money Transfer and Payment Services

The license enables businesses to provide the following services:

• money transfers between individuals or entities using electronic money transfer networks or any other methods, including credit and debit cards;
• issuing or redeeming money transfers (such as traveler’s checks).

This does not apply to operations like cashing checks made out to a specific individual or entity.

Currency Exchange Services

An MSB license permits transactions for exchanging and converting one fiat currency into another.

Issuing Payment Cards

Issuing payment system cards is another service that companies holding an MSB license in Canada can offer their clients.

Card Acquiring Services

This refers to processing cashless payments using physical cards. Companies with an MSB license can also offer online acquiring services.

Handling Crypto Transactions

An MSB license permits operations with virtual currencies, including:

• cryptocurrency exchange and transfers;
• converting between virtual and fiat currencies.

It also allows for direct exchanges between different electronic currencies.

Conducting Crowdfunding Activities

A crowdfunding platform is typically used by individuals or entities to raise funds in virtual or fiat currencies. An MSB license allows companies to legally conduct crowdfunding activities.

Main Requirements for an MSB License in Canada

All financial enterprises providing services to clients must comply with Canadian law and assist the government in combating money laundering and fraud as per the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

Companies are required to adhere to anti-money laundering (AML) and combating the financing of terrorism (CTF) policies and must conduct “Know Your Customer” (KYC) procedures!

Failure to meet these requirements poses the risk that their services could be exploited for illegal activities, making the MSBs themselves potential targets for fraud. Violating AML rules will lead to serious consequences, ranging from fines and license revocation to criminal prosecution.

Canadian MSBs must meet the following requirements:

1. They must collect and store all client information for those using their services, and conduct additional verification if the client makes a transaction exceeding $10,000.
2. For politically exposed persons (PEP), companies must investigate the source of funds when they conduct transactions using the company’s services. This ensures that the funds were not acquired illegally and that the transaction complies with PCMLTFA regulations.
3. Companies must also properly maintain and store all financial records for at least five years.

Additionally, the main requirements for obtaining an MSB license in Canada include mandatory company registration, physical presence in the country, and specific conditions for hiring staff.

Establishing a Legal Entity

The primary condition for obtaining an MSB license is registering the business with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). This includes maintaining records, paying taxes, and regularly reporting financial transactions to tax and regulatory authorities in the country.

The application for registering a legal entity in this jurisdiction must include all company details:

• name;
• legal address;
• full description of the activity.

Copies of documents for the owners and directors are also required.

It’s important to note that virtual currency transactions in Canada are subject to the Income Tax Act (ITA). The tax rate depends on the company’s annual income and can range from 15% to 33%.

The most favorable tax regime is available to companies registered in British Columbia.

Taxation here has the following features:

• tax is only levied on income earned within the province, and the rate for income outside Canada is 0%;
• corporate income tax is 12%, one of the lowest rates;
• additional tax credits are available for incomes up to CAD 300,000.

All companies operating in Canada are also required to pay a federal tax, which is 15%.

Setting up a Physical Office

To obtain an MSB license, a company must lease an office in Canada and then present a valid lease agreement and photos of the premises. Any province can be chosen, including British Columbia, which offers the lowest tax rates.

Staffing Requirements

All personnel, from management (founders, shareholders) to regular employees, must have a clean record and no criminal convictions in their country of citizenship.

Companies applying for an MSB license must provide the regulator with relevant certificates for each employee.

An MSB must include a compliance specialist responsible for developing and monitoring AML/CTF adherence. Additionally, a resident director is required, and at least one director must have experience in finance and economics.

Appointments of senior personnel should be made before applying for the license.

Beneficiary Information

The following information about the business beneficiaries must be provided:

• citizenship;
• certificates of no criminal record.

Additionally, the sources of income must be documented.

Required Documents and Information for MSBs in Canada

This includes preparing all initial information and documentation. A preliminary project analysis, KYC data collection, and a description of the business are required.

At this stage, AML/CFT policies must also be developed. This involves creating a business model with a detailed description of activities, including currency, countries, typical clients, and how the company will provide its services.

The corporate documentation package for an MSB in Canada includes:

• a business plan;
• a financial plan;
• official confirmation of the actual (legal) address;
• information about the company’s bank account;
• company charter documents;
• total number of employees;
• certified English translations of documents verifying the identity of:
  • the company director;
  • the ultimate beneficial owner;
  • the AML compliance officer.

Additionally, an annual estimate of transactions in USD (separately for each type of service the firm will offer) is required.

MSB vs. FMSB: Overview

There are two types of financial enterprises:

• foreign Money Services Business (FMSB Canada);
• money Services Business (MSB Canada).

Both must comply with the requirements of the PCMLTFA and meet all accounting and reporting obligations. They must also be registered with FINTRAC.

Differences Between MSB and FMSB Canada Licenses:

A company may not be classified as an MSB or FMSB if it is engaged in MSB activities while providing other types of services.

Regulator and Applicable Laws

FinTRAC oversees all MSBs in Canada. This body monitors, collects, and analyzes information on financial transactions with the primary aim of combating money laundering and terrorism financing.

In addition to supervising accountable entities, FinTRAC issues permits and licenses for financial activities. It also establishes standards and regulations that all MSBs in Canada must adhere to.

The PCMLTFA sets out requirements for companies providing financial services and defines penalties or criminal liabilities for non-compliance. Sanctions may include suspension or revocation of the license.

All businesses conducting monetary transactions must ensure full compliance with Canadian laws. Cooperation with FinTRAC and regular staff training on anti-terrorism financing and anti-money laundering methods are mandatory.

Application and Approval Process for MSBs

Applications for obtaining an MSB license in Canada are submitted to the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC).

MSB Registration Fees

There are no fees associated with the registration process for an MSB license with FinTRAC.

MSB Canada Application Registration Process

Applications for MSB registration in Canada can be submitted either in person or online. The process involves several stages:

1. The company undergoes preliminary registration by completing a form detailing the monetary services the business will offer.

2. A FinTRAC compliance officer contacts the company’s representative or owner and provides the registration form for completion.

3. The registration form requires the following information:

• all founding and corporate documents of the company;
• legal and physical addresses of the company;
• bank account details;
• information about the compliance officer;
• details about employees, owners, and senior management.

4. The submitted information is reviewed, and the applicant receives one of the following documents:

• notification of registration approval and registration number;
• request for clarification and additional information;
• notification of rejection and reasons for the denial.

Upon approval of the registration form, some of the data provided will be publicly available and listed in the FinTRAC Registry.

MSB Registration Timeline

The overall duration for preliminary and main registration of an MSB license in Canada is approximately a few months, assuming no additional queries are raised.

Procedure for Obtaining Permission to Operate as an MSB

To obtain permission to operate as an MSB, you must:

1. Register the company in Canada.
2. Open a bank account.
3. Complete preliminary registration with FinTRAC and undergo an interview with a FinTRAC representative.

After these steps, the MSB license can be obtained, allowing the company to conduct financial services legally and in compliance with the laws.

Document Collection for MSB Registration

The specific documents required for MSB registration vary depending on the company’s structure, type of business, and services provided.

General requirements include:

1. Completed MSB license application form.
2. Business plan with a detailed description of services and target market.
3. Proof of business registration (issued business license).
4. KYC/AML policies and procedures.

Additional information about directors and company owners is also required.

Setting Up a Canadian Business

Establishing a business in Canada involves:

• registering the company under an approved name in the jurisdiction;
• securing a legal address (leasing office space and signing a lease agreement);
• determining the share capital;
• preparing a set of corporate documents, notarized.

At this stage, one or more directors with experience in finance and economics are appointed.

Opening a Bank Account for Your MSB

To obtain an MSB license, a corporate account must be opened, and the organization must comply with regulatory and tax authorities.

For opening an account in a foreign bank, you need to provide:

1. Certificate of registration.
2. Company charter.
3. Articles of incorporation.
4. Board and officer resolutions.
5. Other documents required by the bank.

The bank account in Canada must hold the minimum share capital necessary to cover the company’s operational expenses.

Pre-application Steps and FinTRAC Registration

This stage includes:

• preparing documents for MSB activities (AML/CTF);
• recruiting, training, and onboarding staff;
• submitting the application for an MSB license in Canada.

If needed, additional documentation may be gathered and submitted upon FinTRAC’s request.

Registration Step

If all FinTRAC requirements are met, the applicant receives the license, and the company is listed in the Canadian MSB registry.

Result:  A legally operating company within Canada’s legal framework!

The validity period of this license is one year. To renew it, you must submit an application to FinTRAC before the current license expires. Re-registration for an MSB in Canada may be required under specific circumstances.

To ensure a successful and seamless registration process, it is highly advisable to engage experienced professionals with the necessary expertise in handling such matters.

Lawrange experts can assist with preparing and submitting the documentation for obtaining an MSB license in Canada.

FAQ

What defines an MSB in Canada?

An MSB in Canada is not part of the banking system but can perform certain financial operations within the country, such as money transfers or currency exchange. Its activities are regulated under the PCMLTFA.

What are some examples of Money Services Businesses?

Examples of companies operating under an MSB license include Western Union and MoneyGram. They provide money transfer services and allow money to be received and sent worldwide.

What can I do with a Canadian MSB License?

An MSB license allows companies in Canada to offer services related to:

• payment accounts;
• money transfers,
• currency exchange;
• processing cryptocurrency transactions, etc.

Operations are permitted in Canadian dollars or foreign currencies both within Canada and globally. The MSB license allows businesses to operate on the international market with both individuals and entities, opening up new opportunities for growth.

ORDER A MSB LICENSE IN CANADA