As of April 27, 2022, FINTRAC retracted its previous position on merchant servicing and payment processing. Now, certain payment service providers are subject to the requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its Regulations. One of these requirements is the obligation to register with FINTRAC.
Businesses Subject to the PCMLTFA
Following the recent amendments to the PCMLTFA’s Regulations, crowdfunding platforms and certain payment service providers are money service businesses (MSBs) or foreign money service businesses (FMSBs) under the PCMLTFA. Consequently, businesses offering crowdfunding platform services and certain payments services have MSBs or FMSBs obligations under the PCMLTFA.
Under paragraphs 5(h)/(h.1) of the PCMLTFA, a person or entity is an MSB or FMSB if they provide any of the following services:
- Foreign exchange dealing (conducting transactions where one fiat currency is exchanged for another fiat currency);
- Remitting or transmitting funds by any means or through any person, entity, or electronic funds transfer network;
- Issuing or redeeming money orders, traveller’s cheques, or other similar negotiable instruments (except for cheques payable to a named person or entity);
- Dealing in virtual currency, which includes both virtual currency exchange and value transfer services; or
- Any prescribed service.
Payment Service Providers Subject to the PCMLTFA
FINTRAC considers persons or entities that provide (a) invoice payment services or (b) payment services for goods and services as remitting or transmitting funds or dealing in virtual currency (services (2) and (4) above). Both activities are MSB services subject to the PCMLTFA subject to other criteria.
(a) Invoice payment services
A person or entity provides invoice payment services when they act as an intermediary between a payer and a payee to make payments to invoices (e.g., utilities or payroll).
There is one exception to this category: a person or entity that solely receives payments from the payee to pay a debt, and who does not transfer payment instructions to the original payee.
(b) Payment services for goods and services
A person or entity provides payment services for goods and services if they meet three conditions:
- They receive payment instructions and act as an intermediary between a paying purchaser and a payee supplier;
- The payer consents to make the payments through them; and
- The payee has an agreement with them to have access to the payment transfers.
There are two exceptions to this category:
- A person or entity that solely accepts a payment for goods or services that they supplied to their own customer; or
- A person or entity that solely provides hardware (e.g., a payment terminal), and does not offer any other associated payment services.
Requirements to Register with FINTRAC
Crowdfunding platforms that raise funds and payment service providers under the two categories above must register with FINTRAC as an MSB or FMSB.
If you have an MSB or FMSB that is already registered with FINTRAC but now offers services subject to the PCMLTFA, you must update your registration information.
Thank you to Ephraim Barrera for his contribution to this article. The contents of this article are not to be construed as legal advice. Contact Emerge Law’s lawyers for legal assistance.