Navigating Canadian Money Services Businesses: A CDN Money Guide

Money services businesses (MSBs) in Canada play a vital role in the financial landscape, facilitating various transactions for individuals and entities. However, this sector is also subject to stringent regulations to combat money laundering and terrorist financing. Understanding these regulations is crucial for businesses operating within or interacting with the Canadian financial system. This guide provides a comprehensive overview of Canadian MSBs, their obligations, and the regulatory framework they must adhere to, ensuring compliance and contributing to a safer financial environment.

Understanding Money Services Businesses (MSBs) in Canada

In Canada, Money Services Businesses (MSBs) are defined under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations. These regulations are enforced by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada’s financial intelligence unit. It’s vital for any entity operating within the Canadian financial system to understand if they qualify as an MSB, as this designation carries specific legal obligations.

Who Qualifies as a Canadian MSB?

A business is classified as a Money Services Business (MSB) in Canada if it meets all of the following criteria:

Service Offerings: The business provides one or more of the following financial services:
- Foreign Exchange Dealing: This involves exchanging one type of currency for another. A common example is converting US dollars (USD) to Canadian dollars (CAD). It’s important to note that simple purchases using foreign currency where change is given back in Canadian dollars may not always be considered a foreign exchange transaction.
  
  For instance, consider these scenarios:
  1. Diana uses a $100 US bill to pay for gas and a chocolate bar and requests change in Canadian dollars. This is not typically a foreign currency exchange transaction for the full amount.
  2. Esther pays for a $20 book using a $50 US bill and a $50 US traveler’s cheque, asking for Canadian dollar change. The change from one $50 payment isn’t foreign exchange, but the change from the other $50 payment is considered foreign currency exchange.
- Remitting or Transmitting Funds: This service involves moving funds from one person or entity to another through electronic funds transfer networks or other methods like Hawala, Hundi, Fei ch’ien, and Chitti. This also includes transactions using credit or debit cards if the recipient has an agreement with a payment service provider allowing such payments for goods and services.
  
  FINTRAC considers businesses offering invoice payment services or payment services for goods and services to be engaged in remitting or transmitting funds, or dealing in virtual currency.
  1. Invoice Payment Services: Acting as an intermediary between payers and payees for invoice payments (utilities, payroll, rent, tuition, etc.).
    - Exception: Solely receiving payments for a payee to settle debt without further transferring payment instructions to the original payee.
  2. Payment Services for Goods or Services:
    - Receiving payment instructions and acting as an intermediary between a buyer and seller of goods or services.
    - The buyer agrees to pay through the intermediary.
    - The seller has an agreement with the intermediary to access the funds as payment.
    - Exceptions:
      - Solely accepting payment for goods or services they directly supplied to their customer.
      - Solely providing payment hardware (like terminals) without offering associated payment services.
- Issuing or Redeeming Money Orders, Traveler’s Cheques, or Similar Instruments: This refers to businesses that issue or redeem money orders, traveler’s cheques, or similar negotiable instruments. It does not include simply cashing cheques made out to a specific person or entity.
  - Issuing: Offering your own business’s money orders or traveler’s cheques.
  - Redeeming: Repurchasing your own business’s money orders or traveler’s cheques by refunding the purchase price.
  - Selling or Cashing: Exclusively selling or cashing money orders or traveler’s cheques issued by another business does not make you an MSB.
- Dealing in Virtual Currency: This encompasses both virtual currency exchange and transfer services.
  - Virtual Currency Exchange Services: Exchanging funds for virtual currency, virtual currency for funds, or one virtual currency for another.
  - Virtual Currency Transfer Services: Transferring virtual currency at a client’s request or receiving virtual currency for remittance to a beneficiary.
  Note: As mentioned earlier, FINTRAC considers invoice payment services and payment services for goods and services may also be classified as dealing in virtual currency.
- Crowdfunding Platform Services: Providing and maintaining a platform for others to raise funds or virtual currency. This service is for platforms used by other individuals or entities to raise capital, not for a business raising its own funds.
- Armored Car Services: Transporting currency, money orders, traveler’s cheques, or other negotiable instruments as a business.
Place of Business in Canada: The business must have a place of business in Canada, which means at least one of the following applies:
- Incorporated in Canada.
- Has a physical business location in Canada.
- Has employees, agents, or branches located in Canada.
Additional Considerations: Even if the above criteria are met, you might still be considered an MSB if:
- You hold a permit or license related to any of the MSB services listed above.
- You are registered as offering any of these services.
- You advertise (in any form – newspaper, TV, internet, signs, etc.) that you engage in MSB services.
- Even if you don’t advertise MSB services, but you:
  - Offer money transfer services in any amount.
  - Conduct foreign exchange transactions over $1,000 in a single transaction with the same person or entity (transactions within 24 hours to the same person/entity totaling $1,000 or more are considered a single transaction).
  - Issue or redeem money orders, traveler’s cheques, etc., for more than $1,000 in a single transaction with the same person or entity (similar 24-hour rule applies).
- You report income from any of the above-mentioned services as separate business income for tax purposes.

Foreign Money Services Businesses (FMSBs) Operating with CDN Money

The regulations also extend to Foreign Money Services Businesses (FMSBs). An entity is considered an FMSB if it meets all of these criteria:

Engaged in MSB Services: The business provides at least one of the MSB services mentioned above (Foreign exchange dealing, Remitting or transmitting funds, Issuing or redeeming money orders etc., Dealing in virtual currency, Crowdfunding platform services).
No Place of Business in Canada: This means the business:
- Is not incorporated in Canada.
- Does not have a physical location in Canada.
- Does not have employees, agents, or branches in Canada.
Directing Services at Canadian Persons or Entities: The FMSB actively targets the Canadian market. This is indicated if at least one of the following applies:
- Marketing or advertising is directed at individuals or entities in Canada.
- Operates a “.ca” domain name.
- Is listed in a Canadian business directory.
Examples of directing services at Canada:
1. Company A in Australia advertises online money transfer and exchange services in Canadian newspapers and on websites aimed at Canadians.
2. Company B in France emails Canadian clients promoting its foreign exchange services.
Even without these specific points, a business may still be considered to be directing services at Canada based on a combination of factors, such as:
- Describing services as being offered in Canada.
- Offering products or services in Canadian dollars (Cdn Money).
- Providing customer service support to clients in Canada.
- Seeking feedback from Canadian clients.
- Having a Canadian business promote their services.
Providing Services to Clients in Canada: The FMSB provides these services to clients who are considered to be “in Canada.” A client is considered “in Canada” if they have a connection or residential ties to Canada. This can be determined based on information gathered during client interactions, such as identity verification. A client is “in Canada” when:
- Their address is in Canada.
- Identity verification documents are issued by a Canadian province, territory, or the federal government.
- Their banking, credit card, or payment processing service is based in Canada.
Note: An individual temporarily living, studying, working, or vacationing outside Canada might still be deemed “in Canada.”

Who is NOT an MSB or FMSB when dealing with CDN Money?

It’s equally important to understand who is not classified as an MSB or FMSB. You are not an MSB or FMSB if:

Agent of an MSB: You offer MSB services solely as an agent for a registered MSB. In this case, the registered MSB is responsible for the regulatory obligations, not the agent.
Incidental MSB Activity: You conduct MSB activities as part of providing other regulated financial services. For example, a securities dealer who exchanges currency as part of a securities transaction is not considered an MSB in that specific activity.

Examples of entities NOT considered MSBs:

Darren transfers funds as an agent for Money Transfer Inc. and uses their signage. Darren is not the MSB; Money Transfer Inc. is.
ABC Investment Advisors Inc., a securities dealer, receives Euros to purchase Canadian securities. This currency exchange is not an MSB service as it’s part of their securities dealing services.

Key Regulatory Requirements for MSBs and FMSBs Handling CDN Money

Both Canadian MSBs and FMSBs operating in Canada are subject to a comprehensive set of regulatory requirements under the PCMLTFA to combat money laundering and terrorist financing. These obligations are crucial for maintaining the integrity of the Canadian financial system and ensuring compliance with international standards.

1. Registration with FINTRAC

Mandatory Registration: Before commencing operations in Canada, every MSB and FMSB must register with FINTRAC. This registration is mandatory even if the business is already registered or licensed as an MSB/FMSB at the provincial or territorial level.
No Registration Fees: FINTRAC does not charge any fees for registration.
Eligibility: Certain individuals and entities are ineligible to register and therefore cannot operate as MSBs or FMSBs in Canada. It’s important to verify eligibility before attempting to register.

2. Implementing a Compliance Program

A robust compliance program is the cornerstone of meeting regulatory obligations for MSBs and FMSBs. This program must be effectively implemented and maintained and includes the following key elements:

Compliance Officer: Appointing a compliance officer responsible for overseeing the implementation and management of the compliance program. This individual must have sufficient authority within the organization to fulfill their duties effectively.
Written Compliance Policies and Procedures: Developing and documenting comprehensive policies and procedures that outline the MSB’s obligations under the PCMLTFA and associated Regulations. These documents should detail the processes and controls in place to meet these obligations.
Risk Assessment: Conducting a thorough risk assessment to identify and evaluate the money laundering and terrorist financing risks that the MSB is exposed to. This assessment should consider various factors, including the services offered, customer base, geographic locations, and delivery channels. The risk assessment must be documented and regularly updated.
Training Program: Establishing and maintaining an ongoing training program for employees, agents, and other authorized individuals. This program should cover all aspects of the MSB’s compliance obligations, including identifying suspicious transactions, verifying client identity, record-keeping, and reporting requirements. Training should be tailored to the specific roles and responsibilities of personnel and updated regularly to reflect changes in regulations and emerging risks.
Two-Year Effectiveness Review: Conducting a review of the compliance program’s effectiveness at least every two years. This review can be performed internally or by an external auditor and should assess the program’s design and operational effectiveness in meeting regulatory requirements and mitigating identified risks.

3. Know Your Client (KYC) Obligations

MSBs and FMSBs must implement Know Your Client (KYC) procedures to verify the identity of clients and conduct customer due diligence for certain activities and transactions. KYC is a crucial element in preventing money laundering and terrorist financing.

When to Verify Identity: Identity verification is required in various situations, including:
- Large Cash Transactions: Transactions involving CAD 10,000 or more in cash.
- International Electronic Funds Transfers (EFTS): Sending or receiving international EFTs of CAD 1,000 or more.
- Virtual Currency Transactions: Transactions involving virtual currency of CAD 1,000 or more.
- Foreign Currency Exchange: Foreign currency exchange transactions of CAD 3,000 or more.
- Money Orders, Traveler’s Cheques, etc.: Issuing or redeeming money orders, traveler’s cheques, or similar instruments for CAD 3,000 or more.
- Suspicious Transactions: In cases where there are reasonable grounds to suspect money laundering or terrorist financing, regardless of the transaction amount.
- Business Relationships: When entering into a business relationship with a client.
Methods of Identity Verification: FINTRAC prescribes specific methods for verifying the identity of individuals and entities. These methods include:
- For Individuals: Using government-issued photo identification, credit file method, or dual-process method.
- For Entities: Obtaining and verifying incorporation documents, partnership agreements, or trust documents.
Business Relationship Requirements: A business relationship is established when an MSB is required to verify a client’s identity for a second time, or when a service agreement is established with an entity in Canada to provide MSB services. Once a business relationship is established, ongoing monitoring is required.
Ongoing Monitoring: MSBs must conduct ongoing monitoring of business relationships to detect suspicious transactions and ensure that client information remains up-to-date.
Beneficial Ownership: For entities, MSBs must obtain and take reasonable measures to confirm the accuracy of beneficial ownership information. Beneficial owners are individuals who directly or indirectly own or control 25% or more of the entity.
Third-Party Determination: MSBs have obligations to determine if a client is acting on behalf of a third party in certain transactions and reporting scenarios.
Politically Exposed Persons (PEPs) and Heads of International Organizations (HIOs): MSBs are required to determine if clients are PEPs or HIOs for certain activities and transactions. Enhanced due diligence measures are required for clients identified as PEPs or HIOs, as they are considered higher risk for money laundering and corruption.

4. Transaction Reporting Obligations

MSBs and FMSBs are legally obligated to report certain types of transactions to FINTRAC. These reports are crucial for FINTRAC’s analysis and investigation of potential money laundering and terrorist financing activities. The key reports include:

Suspicious Transaction Reports (STRs): MSBs must report transactions when there are reasonable grounds to suspect that the transaction is related to money laundering or terrorist financing. STRs are a cornerstone of the reporting regime and require careful attention to potential red flags and unusual transaction patterns.
Terrorist Property Reports (TPRs): MSBs must immediately report property in their possession or control that they know is owned or controlled by or on behalf of a listed terrorist or terrorist group.
Large Cash Transaction Reports (LCTRs): Reports are required for cash transactions of CAD 10,000 or more received in a single transaction.
Large Virtual Currency Transaction Reports (LVCTRs): Reports are required for virtual currency transactions of CAD 10,000 or more received in a single transaction.
Electronic Funds Transfer Reports (EFTRs): Reports are required for international EFTs (both incoming and outgoing) of CAD 10,000 or more.
- 24-Hour Rule: For LCTRs, LVCTRs and EFTRs, multiple transactions within a 24-hour period by the same individual or entity that total CAD 10,000 or more must be treated as a single transaction for reporting purposes.
Sanctions Evasion Reporting: MSBs must also be vigilant in detecting and reporting transactions that may be related to sanctions evasion.

5. Record Keeping Requirements

MSBs and FMSBs are required to maintain various records to support their compliance with the PCMLTFA. These records must be kept for specific periods and be readily accessible to FINTRAC during examinations. Record-keeping requirements include:

Client Identification Records: Records of information used to verify client identity.
Transaction Records: Detailed records of various types of transactions, including large cash transactions, EFTs, foreign exchange transactions, virtual currency transactions, money order transactions, and suspicious transactions.
Compliance Program Records: Documentation related to the MSB’s compliance program, including policies and procedures, risk assessments, training records, and effectiveness review reports.

6. Travel Rule for Electronic Funds Transfers and Virtual Currency Transfers

The “travel rule” requires MSBs to include originator and beneficiary information in electronic funds transfers (EFTs) and virtual currency transfers. This information “travels” with the transaction to help facilitate investigations and enhance transparency.

7. Ministerial Directives

MSBs and FMSBs must comply with any ministerial directives issued by the Minister of Finance under the PCMLTFA. These directives may impose additional measures or requirements to address specific risks or vulnerabilities.

Penalties for Non-Compliance with CDN Money Regulations

Failure to comply with the PCMLTFA and its associated Regulations can result in significant penalties. FINTRAC has the authority to issue Administrative Monetary Penalties (AMPs) for non-compliance. Penalties can range from warnings to substantial fines, depending on the severity and nature of the violation. Continued or serious non-compliance can also lead to more severe enforcement actions, including criminal charges.

Glossary of Key Terms Related to CDN Money Services

To fully understand the regulatory landscape for Canadian MSBs and FMSBs dealing with CDN money, it’s essential to be familiar with key terms and definitions. Here’s a glossary of relevant terms:

Accountant: A chartered accountant, certified general accountant, certified management accountant, or chartered professional accountant.
Accounting Firm: A business providing accounting services to the public with at least one qualified accountant.
Act: Refers to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
Administrative Monetary Penalties (AMPs): Civil penalties issued by FINTRAC for non-compliance.
Affiliate: An entity related to another through ownership or consolidated financial statements.
Agent (Money Services Business Agent): An individual or entity authorized to provide services on behalf of an MSB but is not an MSB branch itself.
Armored Cars: Businesses transporting currency, money orders, traveler’s cheques, etc.
Beneficial Owner: Individuals who ultimately own or control 25% or more of an entity.
Branch: A distinct business location separate from the main office.
Cash: Canadian and foreign coins and banknotes.
Client: An individual or entity engaging in a financial transaction.
Compliance Officer: The individual responsible for overseeing the MSB’s compliance program.
Compliance Program: All elements required by the PCMLTFA to ensure regulatory compliance (officer, policies, risk assessment, training, review).
Correspondent Banking Relationship: An agreement between financial entities for services like international EFTs, cash management, etc.
Crowdfunding Platform: A website or application used to raise funds or virtual currency through donations.
Crowdfunding Platform Services: Providing and maintaining crowdfunding platforms for others to raise funds.
CDN Money: Refers to Canadian Dollar currency, both physical and digital forms, within the context of Canadian Money Services Businesses.
Dealer in Precious Metals and Stones: A business buying or selling precious metals, stones, or jewelry.
Directing Services: Actively targeting persons or entities in Canada through marketing, domain names, directories, etc.
Electronic Funds Transfer (EFT): Electronic transmission of funds transfer instructions.
Entity: A body corporate, trust, partnership, fund, or unincorporated organization.
Financial Entity: Includes banks, credit unions, trust companies, securities dealers, life insurance companies, and other regulated financial institutions as defined in the PCMLTFA.
Foreign Currency: Fiat currency issued by a country other than Canada.
Foreign Currency Exchange Transaction: Exchange of one fiat currency for another.
Foreign Money Services Business (FMSB): An MSB that does not have a place of business in Canada but directs services at and serves clients in Canada.
Funds: Cash, fiat currencies, securities, negotiable instruments, or private keys for accessing fiat currency (excluding virtual currency).
Head of an International Organization (HIO): A person holding or having recently held a senior position in an international organization.
Large Cash Transaction Record: Record for cash transactions of CAD 10,000 or more.
Large Virtual Currency Transaction Record: Record for virtual currency transactions of CAD 10,000 or more.
Minister: The Minister of Public Safety and Emergency Preparedness (for sections 24.1-39 of the PCMLTFA) and the Minister of Finance (for other provisions).
Money Laundering Offence: An offense under subsection 462.31(1) of the Criminal Code, related to concealing the source of criminal proceeds.
Money Laundering and Terrorist Financing Indicators (ML/TF indicators): Red flags suggesting suspicious activity.
Money Services Business (MSB): A business in Canada providing specific financial services (foreign exchange, money transfer, etc.) as defined under the PCMLTFA.
Occupation: An individual’s job or profession.
Person: An individual.
Politically Exposed Domestic Person (PEP): An individual holding or having recently held a prominent political position in Canada.
Politically Exposed Foreign Person (PEFP): An individual holding or having recently held a prominent political position in a foreign country.
Precious Metal: Gold, silver, palladium, or platinum in specific forms.
Precious Stones: Diamonds, sapphires, emeralds, etc.
Prepaid Payment Product: A product enabling electronic access to prepaid funds.
Public Body: Government departments, municipalities, hospitals, etc.
Real Estate Broker or Sales Representative: Agent for real estate transactions.
Real Estate Developer: Sells new houses, condos, commercial buildings, etc.
Reasonable Measures: Steps taken to achieve an outcome, even if unsuccessful.
Reliable (Information Source): Well-known, reputable, and trusted source for verification.
Representative for Service (FMSB): Individual in Canada designated to receive notices for an FMSB.
Risk Assessment: Identifying and documenting potential ML/TF risks.
Sanctions Evasion: Offence related to violating sanctions under specific Acts.
Securities Dealer: Person or entity registered to trade in securities.
Senior Officer: Director, CEO, COO, or other high-level executive.
Service Agreement: Agreement for ongoing MSB services.
Settlor: Person or entity creating a trust.
Shell Bank: A foreign financial institution without a physical presence and regulatory oversight in its home country.
Source of Funds or of Virtual Currency: Origin of funds used in a transaction.
Source of Wealth: Origin of a person’s total assets.
Suspicious Transaction Report (STR): Report filed with FINTRAC when there are suspicions of ML/TF.
SWIFT: Society for Worldwide Interbank Financial Telecommunication.
Terrorist Activity: As defined in the Criminal Code.
Terrorist Activity Financing Offence: Offences related to funding terrorist activities.
Terrorist Property Report (TPR): Report filed with FINTRAC for property linked to terrorism.
Third Party: Individual or entity instructing another to act on their behalf.
Training Program: Program for employee training on PCMLTFA obligations.
Travel Rule: Requirement to include originator and beneficiary information in EFTs and virtual currency transfers.
Trust: Legal arrangement where property is held by a trustee for a beneficiary.
Trust Company: Company engaged in trust and fiduciary activities.
Trustee: Person or entity holding assets in trust.
Two Year Effectiveness Review: Periodic review of the compliance program’s effectiveness.
Valid (Document): Legitimate, authentic, unaltered, and not expired.
Verify Identity: Using prescribed methods to identify a client.
Virtual Currency: Digital representation of value used for payment or investment, readily exchangeable for funds.
Virtual Currency Exchange Transaction: Exchange of virtual currency for funds, or vice-versa, or virtual currency for virtual currency.
Violation: Contravention of the PCMLTFA or regulations.
Working Days: Monday to Friday, excluding weekends and public holidays (for EFT and virtual currency reports).

This comprehensive guide provides a detailed understanding of Canadian Money Services Businesses, their regulatory obligations concerning CDN money, and the framework designed to combat financial crime. Compliance with these regulations is not just a legal requirement but also a crucial aspect of responsible business practice in the Canadian financial sector.