All about the Canadian Money Service Business licence

The Canadian MSB (Money Service Business) licence came on the market in 2020, it grants its holders the right to engage in financial services and can only be obtained by a Canadian company. The financial sector is one of the priority areas supported by the government of this country. There are many facts in favour of choosing a Canadian Money Service Business (MSB) licence:

• Canada is one of the three G20 leaders in terms of financial strength, which confirms the reliability and stability of the country's financial system;
• Canada has a highly educated and competitive labour force;
• Canada has 15 active free trade agreements covering 51 countries. This creates a favourable environment for international business and expanding global partnerships;
• seven of the world's 50 safest and most trusted banks are located in Canada, indicating a high level of confidence in Canadian financial institutions;
• Canadian financial institutions are actively digitalising their operations, which is accelerating the development and adoption of new technologies in the financial services sector;
• Canada's regulators have moderate requirements for financial services institutions, favouring more flexible and accessible regulation.

The MSB licence is a licence regulated by FINTRAC (The Financial Transactions and Reports Analysis Centre of Canada).  The Canadian MSB licence entitles you to provide the following services:

• exchanging one currency for another (e.g., exchanging US dollars for euros);
• conducting money transfers, including international transfers, for both individuals and legal entities;
• crypto-transactions and crowdfunding services;
• providing access to personalised e-wallets, allowing customers to store funds or deposit them into a bank account linked to the e-wallet;
• providing merchant acquiring services allowing customers to accept card payments, for example, through POS terminals.

MSB and cryptocurrencies

Canadian-registered companies require an MSB licence to provide virtual currency-related services. Cryptocurrency services include the following:

• exchanging fiat money for cryptocurrency and vice versa;
• exchange of one cryptocurrency for another;
• transfer of cryptocurrency at the client's request;
• receiving a cryptocurrency transfer and withdrawing/transferring these funds to the recipient's account.

The following persons may not register as a money service institution

1. Individuals or entities who have been found guilty of:

• money laundering and engaging in other illegal money laundering schemes;
• committing certain offences specified in the Money Laundering and Terrorist Financing Act;
• offences relating to possession of illegally obtained property, fraudulent contracting and trading.

2. Corporations, partnerships or other legal entities whose directors or owners have been found to have engaged in the above violations if the ultimate beneficial owners are individuals who own or control 20% or more of the corporate rights.

FINTRAC, responsible for anti-money laundering and counter-terrorist financing supervision, checks the documents and decides whether to issue licences. As mentioned above, only companies registered in Canada can acquire an MSB licence. 

Let us tell you what steps are involved in registering a company in Canada.

Company registration in Canada

1. Several legal forms are available, but the most common is a corporation.
2. When applying for company registration, at least three variants of the company name must be proposed in order of preference. The regulator must approve or reject the chosen name.
3. It is necessary to have a business plan, which should contain information about the goals and activities of the company, the firm's strategy, and provide financial projections for several years ahead.
4. The company must have a registered office in Canada.
5. The company must open an account in a bank in Canada, where the initial capital will be deposited.

FINTRAC does not set specific minimum initial capital requirements, but depositing a significant amount into the company's account allows the regulator to verify that you are serious about growing your business in this area.

Licensing process

To licence Money Service Business (MSB) in Canada, the following steps must be followed:

1. apply for a licence by listing the company's executives and describing their experience and qualifications in the financial sector; 
2. submit the required documents in the licence application: incorporation documents, business plan, financial statements and other required documents;
3. provide a report including information on your internal customer due diligence (KYC) procedures, methods of detecting suspicious transactions and measures taken to comply with anti-money laundering (AML/CTF) requirements.

Let's look at these steps in more detail. When incorporating a Canadian company, a minimum of one director must be appointed, who may be an individual with financial industry experience or qualifications. An AML (anti-money laundering) officer must also be appointed. The director and AML officer do not need to be Canadian residents. 

The MSB licence application process will require proof of the institution's financial solvency and good legal standing.

Licensing is only the first step in compliance for MSBs. In Canada, such financial institutions are required to give due consideration to Know Your Customer, anti-money laundering and data security policies. Financial companies must clearly identify their customers, assess potential risks and establish screening procedures to help prevent illegal financial activity. MSB-licensed institutions in Canada are also required to use secure data practices for transactions and information about each customer.

On 1 June 2021, updates to FINTRAC's guidance came into effect that outline the requirements for verifying the identity of individuals and entities for financial services businesses and foreign financial services businesses.

Changes in FINTRAC rules from 1 June 2021

«Know Your Customer» (KYC)

• Verification of the customer in case of transfer or exchange of virtual currency in the amount of one thousand USD or more, or in case of online transfer to the recipient of the currency in the amount of one thousand USD or more.
• Proof of identity of corporations or other organisations within one month of submitting information on the provision of virtual currency exchange or transfer services.
• An exemption exempting from the need to verify the identity of a person or entity performing a large digital currency transaction if such cryptocurrency is received from a financial institution or public authority or a person acting on their behalf.

As of June 1, 2021, all MSB-licensed companies in Canada are required to conduct PEP and HIO inspections:

• obligations to take "reasonable steps to determine" PEP/HIO status under the new rules;
• a commitment to determine the source of wealth of designated persons and to take enhanced risk mitigation measures - within 30 days of establishing a business relationship or identifying relevant circumstances.

Record keeping requirements

• Keeping records of large cash and virtual currency transactions for five years. 
• Timely updating of information.
• Storing information on receipts of USD 3,000 or more per transaction.
• Storing information on transfers of $1,000 or more, including exchange rates, recipients, and accounts involved.

The time to obtain a payment processor licence in Canada is generally around 5 months, which is a relatively quick process compared to other financial licences. For example, the process of obtaining an EMI licence in Europe can take up to one year.

Ready-made company with MSB licence in Canada

Buying a ready-made company is a practical solution if you are looking to start your business as soon as possible. Buying a ready-made company offers a number of advantages, including:

• all AML/CTF and Know Your Customer procedures have been completed;
• purchase of a company with a full set of statutory documents;
• acceleration of the process of opening a corporate account in a foreign bank; 
• availability of history and marketing advantages to increase the trust of customers and partners; 
• availability of LEI code;
• remote re-registration.

Once the re-registration process is completed, the new owner has the opportunity to make certain changes such as changing the name of the company, appointing new directors, changing the registered office, etc.

Intelligent Solution Group helps to register a company, obtain a licence in Canada for financial and crypto activities.

Our specialists accompany the process of obtaining a licence at all stages: from selecting a licence according to the client's request to handing over the documents with the obtained licence to the client and opening a corporate account.

Intelligent Solution Group - a safe space for money and assets.

If you still have questions - call us, we will find a solution for your business.