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What Qualifies As an MSB in Canada?

Helping Canadian Businesses Get Licences, Stay Onside And Resolve Their Legal Challenges.

Understanding the qualifications of a Money Services Business (MSB) in Canada is crucial for both financial professionals and consumers. This article will delve into the specifics of what constitutes an MSB, the regulatory framework surrounding these entities, and the obligations they must fulfill.

Definition of an MSB in Canada

In Canada, an MSB is defined by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) as a business that offers at least one of the following services: foreign exchange dealing, remitting or transmitting funds by any means or through any person, entity or electronic funds transfer network, or issuing or redeeming money orders, traveller’s cheques or other similar negotiable instruments except for cheques payable to a named person or entity.

It’s important to note that this definition is not exhaustive. Other types of businesses may also fall under the MSB category if they engage in activities that are similar in nature. For instance, businesses that deal in virtual currencies may also be considered MSBs.

Regulatory Framework for MSBs

The regulatory framework for MSBs in Canada is primarily governed by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). This legislation requires MSBs to register with FINTRAC and comply with various obligations, including record keeping, identifying clients, reporting suspicious and certain prescribed transactions, and implementing a compliance regime.

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Failure to comply with these obligations can result in severe penalties, including fines and imprisonment. Therefore, it’s crucial for businesses to understand whether they fall under the MSB category and, if so, what their obligations are.

Registration with FINTRAC

One of the first steps a business must take if it qualifies as an MSB is to register with FINTRAC. This process involves providing detailed information about the business and its owners, including their names, addresses, and the services they offer.

Once registered, the business is subject to regular reporting and record-keeping requirements. These include keeping records of all transactions, verifying the identity of clients, and reporting suspicious transactions to FINTRAC.

Implementing a Compliance Regime

Another key obligation for MSBs is to implement a compliance regime. This involves developing and applying policies and procedures to identify, assess, and mitigate risks related to money laundering and terrorist financing.

The compliance regime must also include ongoing training for employees and a designated compliance officer who is responsible for implementing and maintaining the regime. The effectiveness of the compliance regime must be reviewed every two years at a minimum.

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Types of MSBs

There are several types of businesses that may qualify as MSBs in Canada. These include, but are not limited to, foreign exchange dealers, money transfer services, and businesses that deal in virtual currencies.

Each of these types of businesses is subject to the same regulatory framework and obligations. However, the specific risks and challenges they face may vary depending on the nature of their services and their customer base.

Foreign Exchange Dealers

Foreign exchange dealers are businesses that buy and sell foreign currencies. They are considered MSBs because they handle large amounts of money and may therefore be at risk of being used for money laundering or terrorist financing.

Foreign exchange dealers must comply with all the obligations of MSBs, including registering with FINTRAC, keeping records of all transactions, verifying the identity of clients, and implementing a compliance regime.

Money Transfer Services

Money transfer services are businesses that transmit funds on behalf of clients. They are considered MSBs because they provide a means for money to be moved quickly and often anonymously, which can be exploited for illicit purposes.

Like foreign exchange dealers, money transfer services must comply with all the obligations of MSBs. This includes registering with FINTRAC, keeping records of all transactions, verifying the identity of clients, and implementing a compliance regime.

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Businesses Dealing in Virtual Currencies

Businesses that deal in virtual currencies, such as Bitcoin, are also considered MSBs in Canada. This is because virtual currencies can be used to move money anonymously, which can facilitate money laundering and terrorist financing.

These businesses must comply with the same obligations as other MSBs, including registering with FINTRAC, keeping records of all transactions, verifying the identity of clients, and implementing a compliance regime. However, they may face additional challenges due to the anonymous nature of virtual currencies and the rapidly evolving technology in this area.

Conclusion

Understanding what qualifies as an MSB in Canada is crucial for businesses to ensure they are complying with the law. It’s also important for consumers to understand what these businesses are and the regulations they must follow to protect against money laundering and terrorist financing.

Whether a business is a foreign exchange dealer, a money transfer service, or deals in virtual currencies, it must comply with a range of obligations if it qualifies as an MSB. These include registering with FINTRAC, keeping records of all transactions, verifying the identity of clients, and implementing a compliance regime.

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