Guide To The Money Service Business (MSB) License In Canada

What Is A Money Services Business?

Money services business (MSB) is any company other than a bank that provides financial services of all kinds. This business often deals with remittance services, foreign exchange transactions, bank charges, refunds, fundraising, digital assets trading, premises rental, etc. The business must meet the requirements established by law to obtain the MSB status. Money service businesses are considered financial institutions under the Bank Secrecy Act (BSA) and related regulations. As such, they are subject to the same KYC (Know Your Customer), anti-money laundering, and customer due diligence requirements as all other financial companies.

MSB And FMSB

FMSB (Foreign Money Service Business), as well as MSB, is a type of financial company that must meet the compliance requirements of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) in Canada. Both business types must be registered with the Financial Transactions and Reports Analysis Center of Canada (FINTRAC). However, FSMB may be located outside of Canada, unlike MSB, which provides financial services only within the country.

Different Types Of Money Services Businesses

The Canadian MSB status applies to many types of companies engaged in various financial activities. Below is a list of the most famous and common types of businesses that offer money services.

Currency Exchanges

Currency exchange is an enterprise that organizes, regulates, and protects the exchange of currencies (flat and crypto). Forex, eToro, Gemini, Coinbase, and Robinhood are the most famous currency exchange examples, and they are in demand around the world.

Digital Payment Processors

Digital payment processors are intermediaries between two or more parties that transfer money. They provide fast and secure transactions and ensure a connection with the bank. The most popular digital payment processor examples are PayPal, Stripe, Venmo, and SeaMoney.

Money Transfer Services

Such companies ensure the transfer of money from one person to another. MoneyGram, Western Union, Flywire, and Wise are the biggest brands in the money transfer service industry.

Remittance Processors

Remittance processors provide easy and fast money transfers from a person to their family, friends, or acquaintances in another country. WorldRemit, Remitly, Xoom, and Instarem are the most well-known remittance processor examples. Remittance processing is often an additional service for businesses whose primary money service business is something else.

Money Services Business Examples

In order to understand what a business with money services is and learn the basic principles of its work, it is best to study real examples of such companies. Below, we have a description of the most striking examples from different types of MSB:

• Coinbase. This US-based crypto exchange is one of the largest cryptocurrency trading platforms in the world. More than 17,000 virtual currencies are available for purchasing and selling in the user’s national currency. Coinbase also supports safe and fast crypto transactions and exchanging cryptocurrencies for other coins. Transfer and conversion services make Coinbase a great example of a business that deals with money services.
• PayPal is probably the most successful digital payment processing company. The principle of its operation is to configure the linking of the platform to the user’s financial account to create a virtual pool of money. The service provides storage of money and ensures various operations that can be performed with it. PayPal is often used to pay for goods and services (mostly on e-commerce sites) or transfer money from person to person. And, of course, PayPal has the MSB registration.
• Western Union is one of the largest players in the money transfer industry. This service's main advantage is that it is international, and users can send and receive money from anywhere.

MSBs And Anti-money Laundering (AML) Compliance

Unfortunately, not only genuine financial institutions want to become MSB in Canada, but also scammers involved in money laundering. Money services are naturally attractive to all sorts of fraudsters, given that most activities in the sector (one-time transactions, cryptocurrency exchange, etc.) are challenging to track and control. That is why most countries, including Canada, have strict AML requirements for all financial institutions. Of course, each country has its requirements, but the basic principles remain the same everywhere:

• Training employees on a risk-based approach to AML.
• KYC (Know Your Customer).
• Transactions monitoring, especially high-value transfers.
• SAR (Suspicious Activity Reporting).
• Periodic independent reviews.

When To Get The MSB License In Canada?

Let's take a closer look at the cases when a company should apply for an MSB license. Below, you will find a list of services whose provision enrolls a business in the ranks of institutions that provide money services and means that authoritative bodies must control it.

Providing One Of The Eligible Services

In fact, the list of services, the provision of which puts a company in the financial service category, is very long. We tried to highlight the main types of financial activities that occur most often and are subject to mandatory MSB registration:

• Foreign currency exchange
• Cross-border transactions for individuals and business owners.
• Funds remittances and transfers (card payments, terminal transfers, payment gateway solutions, etc.).
• Money orders issuing or redeeming (cash received from the bank, grocery store, post office, etc.).
• Virtual currency exchange and transfer services.
• Personal accounts issuing (for example, personalized digital wallet development).

Providing Direct Services To Persons Or Entities In Canada

The MSB registry must include businesses that plan to provide direct services to Canadians (individuals and entities registered in Canada) but are registered or licensed in other territories. As for the services they offer, they can be any of the money services listed in the previous paragraph.

Providing These Services To Clients Located In Canada

It is necessary to go through the MSB registration in Canada if:

• You offer financial services in Canada to Canadian customers;
• You have a physical office in Canada or a website registered on a Canadian domain or regulated from Canada;
• You hire employees in Canada by the labor laws of the country.

How To Get The Money Services Business License In Canada

Businesses must apply to the Financial Intelligence Unit of Canada (FINTRAC) to obtain an MSB license in Canada. First of all, you must fill out an online pre-registration form and enter information about the following:

• The activities and structure of your company;
• Your business model;
• The office address or email address of your website;
• Identification of management;
• Legal name;
• Contacts.

Within five working days after the pre-registration, a FINTRAC representative will inform you. If your pre-registration application is confirmed, you can fill out the registration form in the MSB Registration System. At this point, you will need to provide your bank account information, compliance reporting information, number of employees, registration information, owner, branch, and agent data, and the estimated total transactions per year for each money service. Then, the FINTRAC Commission will review your request. If your business meets the requirements, you will receive an approval notification, and your company will be assigned a registration number.

Regulatory Requirements For MSBs

The regulatory compliance of money service businesses guarantees a high-security level in the state financial sector. The main regulatory requirements are as follows:

• MSB registration requirements. You need to fill out the registration form, send it to the FINTRAC, and receive a registration number.
• AML compliance. You need to implement an AML risk-based approach.
• Know Your Customer (KYC). Businesses are required to verify the identity of their customers.
• Customer due diligence. You must undertake this process to assess the client's risk profile to know whether they are reliable for the business deal.
• Suspicious activity reporting. Companies are required to monitor customer activity and flag suspicious activity.

Documents

When you submit an MSB application, you need to provide the authority with the following:

• Registration documents for your company (confirmation of its legal status);
• Identification documents of the founders and the staff;
• Business plan;
• Bank account statements;
• Information about the AML officer and their experience;
• Corporate organizational structure and number of staff;
• List and description of provided services;
• Contact details.

How Long Does It Take To Get The License?

If all legal requirements are met and the necessary documentation is fully prepared and submitted to the authority, the review of the FINTRAC license package will take about three weeks. In general, the period from business registration to obtaining the MSB license in Canada takes from a few weeks to several months. Of course, the process may take longer if additional documents are required during the review procedure.

Final Thoughts

So, what is an MSB license? It is a legal permit required in numerous jurisdictions (including Canada) for businesses that occur in financial activities. So, if you are keen to join the Canadian economic market, considered one of the world's most stable markets, you must take a license. The Canadian market is a combination of clear legislative norms and the operational work of the responsible bodies gives a positive result. This is why this market is attractive to everyone, including foreigners, who want to start a startup in finance. Becoming an active player in the field will not be so difficult if you know what requirements your business must meet to obtain an MSB license.

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