How to register a Money Service Business

On June 1^st, 2021, the Canadian government put into effect new amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated regulations, changing the obligations of money service businesses in Canada. A money service business refers to a person or entity that has a place of business in Canada and that is engaged in the business of providing at least one of the following services: (1) foreign exchange dealing, (2) money transferring (3) issuing or redeeming money orders, traveller’s cheques or the like, (4) dealing in virtual currencies, or (5) any prescribed service. 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 register as MSBs with FINTRAC, and likewise impose new obligations on foreign money service businesses, business relationships and 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. Emerge Law has compiled a brief overview and guide to registering your business and complying with necessary obligations.

Registration

1. Who must register?

All MSBs and FMSBs in Canada must register with FINTRAC. This includes those individuals and entities who have registered or have been licensed with a province or territory. Foreign money service business include those individuals or entities that provide MSB services to Canadians with a place of business in Canada.

2. How do you register your Money Services Business?

First, you must complete the pre-registration form online, which requires you to submit information regarding your business’s structure (whether it is a sole proprietorship, corporation, partnership, or other), your business number provided to you by the Canadian Revenue Agency, your business’s legal name, the language of the legal name, business address, contact information and preferred callback times, and the services your business will be providing (including issuing or redeeming money orders, foreign exchange dealing, money transferring, pay day loans, cheque cashing, dealing in virtual currencies, or other).

After completing the pre-registration form, a FINTRAC officer will contact you within 5 business days, and you may then complete and submit your MSB registration form on the MSB Registration System. This process will require certain information including bank account information, information about your compliance officer, the number of employees your business has, incorporation information, information about owners and senior management (including name and date of birth), an estimate of the expected total dollar amount of transactions per year for each MSB service, and detailed information about every branch and agent. Further, FMSBs are required to submit a police record check for every owner (translated in English or French), and the name and address of a Canadian representative of the service.

3. What happens after you register

After submitting your registration, you may receive a notice of approval and your registration number. Alternatively, you may be asked to clarify your registration and provide more details about your MSB when there is missing, incomplete, or inconsistent information. Your registration may also be denied by FINTRAC. Your application to FINTRAC may be denied for several reasons, including failing to reply to a clarification request or ineligibility for registration. Individuals or entities may not be eligible to register if, for example, they have been found guilty of money laundering or a terrorist financing offence, certain offences under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, any offence (other than possession) under the Controlled Drugs and Substances Act, offences under the Criminal Code such as involvement with the activities of a terrorist group, the possession of property obtained from crime or a criminal organization, and fraudulent transactions concerning contracts or trade. Further, ineligibility extends to corporations where their CEO, president, directors, or owners (who control 20% or more of the shares) are a listed terrorist or have been convicted of certain offences; in partnerships, these individuals include managing partner or general manager. The entire process of registering an MSB can take anywhere from two to five months.

Obligations to register

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:

1. Compliance Program

All MSBs and FMSBs must have in place a compliance program and compliance officer. The compliance program is meant to ensure your business is abiding by the obligations and requirements under the PCMLTFA and associated Regulations. Your compliance program must be overseen by an appointed compliance officer, who implements 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 business is a sole proprietorship, your CO may be yourself or an outside party. However, in larger companies, your CO should not be directly involved in the receipt, transfer, or payment of funds.

Further, you must develop and apply written compliance policies and procedures, conduct a risk assessment of your business regarding money laundering offences or terrorist activity financing offences, develop, institute, and maintain a compliance training program for employees and agents, and conduct a review of the effectiveness of the compliance program every two years.

2. Client Knowledge

The PCMLTFA and associated Regulations impose “Know your Client” obligations for certain activities. These activities, for example, include large cash and virtual currency transactions, suspicious transactions, issuing or redeeming traveller’s cheques, money orders, or similar instruments of $3000 or more, transmitting more than $1000 by a means other than electronic funds transfer, information records, etc. In these cases, MSBs must verify the identity of the individuals or entities of these transactions through methods prescribed by the PCMLTFA. Further, if you find yourself having to verify the identity of a client more than once, you must enter into a business relationship with that client, which imposes certain record-keeping and ongoing monitoring requirements. MSBs and FMSBs are also required to keep accurate information regarding beneficial ownership; concealment of which is a tactic used in money laundering and terrorist financing schemes. Similarly, these sorts of schemes may be implemented through third parties as a method to evade detection, and therefore MSBs must have knowledge of whether there is a third party involved and when to make a third-party determination. Finally, MSBs and FMSBs must be aware of any politically exposed persons or heads of international organizations involved with the transaction, as these individuals bring about additional requirements under the Act.

3. Reporting

MSBs are required to report certain transactions to FINTRAC, including suspicious transactions, large cash transactions, large virtual currency transactions, electronic funds transfers, as well as terrorist property reports. Some of these submissions, including large virtual currency transaction reports and incoming or outgoing electronic funds transfer reports transactions, need to be made in 24 hours or less.

4. 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.

5. 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 number) of the client requesting it, the name and address of the beneficiary, and their account number/reference number (if applicable).

6. 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.

Takeaway

As an MSB or FMSB in Canada, it is crucial to understand the totality of obligations you have under the PCMLTFA and associated Regulations, prior to registering your company with FINTRAC/beginning your operations in the country. Failure to abide by registration or other requirements under the Act may lead to administrative monetary penalties (for reasons which include violating compliance program requirements, reporting requirement, know your client requirements, registration, etc.) or criminal penalties imposed by FINTRAC and law enforcement. Therefore, it is important to speak with a lawyer prior to beginning operations to avoid unnecessary fines and risk.

A special thank you to Julia Nowicki for her help and contributions to this article!

Want assistance to register a Money Service Business in Canada? Contact us today at 416-238-5527 to schedule an appointment with one of our Emerge Law lawyers.

The content of this article is written for general information purposes only and does not constitute specific legal advice. This article should not be used as a substitute for competent legal advice from a licensed lawyer.