The MSB Registration Process in Canada: A Step-by-Step Guide

If you intend to start a financial service that has to do with transferring or exchanging money, or dealing in virtual currencies in Canada, then you are bound to register as an MSB that stands for Money Services Business. Payment partners and banks will always want to make sure you have passed this before doing business with you.

Of course, the registration procedure might seem a daunting task, especially if you lack enough experience in this field. Nevertheless, with the right preparation and dedication, you can cope with it. From this article, you will learn whether you are actually an MSB or not and how to submit your application and stay compliant afterward.

Are you really an MSB?

First, you need to make sure you qualify as an MSB. It’s a fairly broad thing, and even firms that don’t consider themselves financial businesses often have to register.

Your firm can be classified as an MSB if you offer the following stuff:

• Currency exchange
• Money transfers, including domestic or cross-border ones
• Issuing or redeeming negotiable instruments like money orders or traveller’s cheques
• Processing virtual currency transactions, including buying, selling, or transferring crypto
• Running a crowdfunding platform

By the way, you don’t need to offer all of these services mentioned above. It would be enough to handle one service from the list to require registration. That’s true for both Canadian-based firms and overseas MSBs serving Canadian customers online.

Why registration is so crucial

Registration can’t be narrowed to paperwork only. Its significance is much bigger. The MSB registration actually shows your potential partners that your firm is operating legally and also taking anti-money laundering obligations seriously.

That’s why it really matters:

• Banks won’t work with you without MSB registration. It is also true for the vast majority of payment processors.
• FINTRAC can get you fined, and in the worst case, your firm can be shut down if you operate unregistered.
• If you process crypto or cross-border payments, watchdogs will keep an eye open on you, so registration can help to get rid of this headache.
• You are also expected to file AML reports, access proper banking infrastructure, and also build trust with customers.

Confirm your MSB status

Before doing anything else, you need to ensure you really fit the criteria. If you’re not providing any of the regulated services, there’s no need to register. However, you shouldn’t be in a hurry. Be careful and double-check your activities against FINTRAC’s definitions to be on the safe side.

Crypto businesses often fall into this trap. If a crypto firm merely runs a blockchain project, then it can’t be classified as an MSB. However, if it turns out that they provide wallet services, crypto exchange, or facilitate transfers, then all of this already requires registration.

If you are not sure about what you’re actually doing, visit FINTRAC’s website, since it offers a good explanation. Alternatively, you can talk to a legal advisor.

Set up your compliance program

That’s the cornerstone of the process. Before FINTRAC examines your application, they expect you to have a fully functional Compliance Program in place. It demonstrates you are ready to meet your responsibilities under the Proceeds of Crime (Money Laundering) as well as the Terrorist Financing Act (PCMLTFA).

Your program is expected to include five major parts:

• Written policies and procedures: That’s the internal rulebook of yours. It clearly explains how your firm stays compliant, tailored specifically to your business model. So, it’s not a generic template.
• A named compliance officer: You require appointing somebody within your firm to be in charge of compliance. He or she must have the authority and resources to manage the role properly.
• Risk assessment: It means analyzing your services, customer base, regions you serve, and also figuring out where money laundering or fraud risks might arise and how you are going to address them.
• Staff training: Your staff members dealing with financial transactions require proper AML training. Certainly, you require tracking and documenting it all.
• Effectiveness review: You should regularly review your compliance program to make sure it functions properly and timely come up with updates if required. Do it at least once every two years.

Collect the required business information

Before you can register, FINTRAC will want to access the entire picture of your business. Get ready to provide the following details:

• Your full legal name and any trade names
• Canada Revenue Agency (CRA) business number
• Your major office and operational addresses
• Your ownership structure, including names of all beneficial owners
• A description of the services you provide
• Information about your banking relationships and any agent locations

Be precise and thorough. Keep in mind that mistakes or missing information can stall the process or get your application rejected completely.

Register online through FINTRAC’s web portal

With everything at hand, it’s high time to come up with an application. You require going through FINTRAC’s online MSB Registration System. To be short, you should:

• Create a profile
• Fill out the application form
• Upload all of the supporting compliance docs
• Confirm your services and business structure
• Submit and wait for approval

Processing takes time, so make sure you submit information in advance. A real person will review your request. Get ready to answer questions. If everything is all right, you will get the desired approval within 2-4 weeks. It’s highly recommended to answer follow-up questions quickly. It should speed up the process.

Get your MSB number

As soon as FINTRAC gets your application approved, they will give you an MSB registration number. Banks, clients, as well as other institutions, can use that number to confirm your authorization.

You will receive confirmation by email. It’s highly recommended to save it because your partners may ask for it when doing their own due diligence.

Once you’re listed, you will automatically get permission to operate as a Money Services Business in this country. Nevertheless, it’s not the end because there’s still something left to comply with on your part.

Stay compliant once registered

Even if you have coped with your registration, compliance never stops for your firm. You face the following duties:

• Filing suspicious transaction reports (STRs)
• Submitting reports for large cash or crypto transactions (over CAD 10,000)
• Maintaining customer records as well as transaction logs
• Keeping your business information up to date with FINTRAC
• Having your registration renewed every two years
• Conducting internal reviews of your compliance system

FINTRAC is free to audit your business at any time, and it might occur unexpectedly. If they stumble on any issues, you may get fined or face worse consequences. Therefore, staying ready and highly organized is as crucial as getting registered.

Special note for foreign MSBs

If your firm is not based in Canada but actually serves Canadian customers, you’re classified as a foreign MSB. Therefore, you need to register.

In fact, you may face greater scrutiny than domestic firms. You will need:

• A compliance program, meeting the country’s requirements
• To appoint a Canadian representative (or compliance officer)
• To report the same types of transactions as local MSBs

The rules are true no matter what you’re doing: operating in crypto, remittances, or even niche payment platforms. If you’re running a business in Canada, then FINTRAC will certainly want to know.

Common pitfalls to stay away from

Some of the biggest MSB incorporation troubles are generated by quite avoidable missteps. That’s what you should avoid:

• Submitting generic compliance documents, which don’t actually reflect your real operations
• Forgetting to update your registration after a business change
• Skipping staff training or effectiveness reviews
• Filing incomplete or late reports
• Thinking you’re exempt because your firm is small or remote

Mind that mentioned above and it will save you tons of time and avoid stress.

Banking can be troublesome

Even after registration, MSBs often have a hard time opening business bank accounts in Canada. It’s because banks are conservative and therefore cautious. Respectively, MSBs are considered extremely risky under AML regulations.

To drastically improve your chances, you need to:

• Present a solid and well-tailored compliance program
• Be 100% transparent about your customer base as well as transaction flow
• Be proactive about enhanced due diligence
• Consider working with fintech-friendly institutions or EMIs

Of course, you have to make a huge effort, but it’s possible to cope with it. Many registered MSBs in this country attribute their success to being organized, professional, and transparent from the very beginning.

Should you hire a consultant?

If you’re a newbie at regulatory compliance or don’t have time to learn this stuff, then hiring a professional consultant can be a smart move.

This expert can:

• Build your compliance documents properly
• Navigate you through the FINTRAC registration
• Provide training to your employees and even act as your compliance officer
• Help you to prepare for future audits

The service might be costly, but that’s the price for your peace of mind and the speed at which your issue is going to be resolved.