Canada is witnessing the rise of Money Services Businesses (MSBs) and Foreign Money Services Businesses (fMSBs). The increasing demand for immediate, reliable money services has given entrepreneurs, in Canada and abroad, an opportunity to enter this rapidly growing field.
The Future of Money Moving (2022) projects a 25% increase in registered MSBs by 2025, driven by digital payments and cross-border transactions.
As per a FINTRAC report, there is a significant increase in enrollment of MSBs. The demand of this sector is increasing day by day because of Canada’s favorable regulatory environment for MSBs compared to other jurisdictions.
For instance, companies provide remittance services for immigrant communities/families that need to send cash to their loved ones abroad to make sure that the cash gets to the family member fast and with minimal fees.
Similarly, there is a rise in the number of cryptocurrency exchange platforms, a highly lucrative area of business in 2024.
These businesses are thriving financially and simultaneously are contributing to the global financial ecosystem by supporting economic activities.
Why Canada?
Canada is highly advantageous for new Money Service Businesses (MSBs) to launch.
The country has a market that is large, diverse and dynamic. It has a strong regulatory framework that also nurtures an ecosystem of financial innovation while not burdening startups with crippling overregulation. Here are a few reasons why entrepreneurs should be more bullish on Canada as a place to launch their MSBs:
1. Light Touch Regulations
It is a regulatory approach that protects consumers by mitigating their regulatory burdens while safeguarding the stability of the financial system. Key features include:
- Flexibility: Regulations that can easily adjust to new technologies and market shifts.
- Promotion of Innovation: Less bureaucracy allows startups and established companies to innovate freely, without worrying about strict regulatory repercussions.
- Risk-Based Supervision: Concentrating on high-risk areas to make sure that the regulatory resources are used effectively.
2. Access to Banking
Once you have an MSB, you can get access to banking rails around the world, including in Europe, Canada, LATAM, etc.
3. Business Stability & Certainty
MSBs require stable and rules-based regulation to thrive; and Canada has long been recognized for the regulatory environment it provides.
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) monitors MSBs compliance with the strict anti-money laundering (AML) and counter-terrorist financing (CTF) regulation.
The strict regulatory oversight ensures that MSBs stay compliant and helps to build trust with customers and partners.
4. Increased Demand for Financial Services
Canada is experiencing a demand surge for a wider range of financial services. The factors influencing this are rising immigration, cross-border trade, and the increased acceptance of digital currencies.
The country right now has one of the most diverse populations in the world. In such a multicultural society, the need for remittance services, currency exchange, and digital payment solutions hold a lot of importance.
This has created an opportunity for entrepreneurs to offer tailor-fitted financial solutions that suit different communities.
Key Requirements for MSB/fMSB Success in Canada
1. Create a Business Plan
It is essential to have a clear business plan for defining the goals, audience, competition, and expansion methods of your MSB/fMSB.
The plan should highlight and incorporate risk management strategies to showcase your cooperation with regulatory compliance.
2. Assess the Risk
Conducting a thorough risk assessment is crucial for recognizing and reducing possible weaknesses.
This evaluation needs to address client background checks, tracking of transactions, location-based risks, and upcoming regulations.
3. Develop AML Policies and Protocols
Your primary bank/financial institution must develop and consistently revise Anti-Money Laundering (AML) protocols and processes that are customized to your particular business operations.
The protocols should detail your entire compliance program, including steps for customer identification, reporting suspicious transactions, maintaining records, and training staff.
4. Understand Compliance Guidelines
It is crucial to have access to compliance experts and lawyers who are knowledgeable about Canadian AML laws.
They are able to assist you in staying updated on regulatory changes and handling communications with FINTRAC and other regulators.
5. Get a dedicated Compliance Officer
You need to assign a qualified compliance officer who understands Canadian AML regulations to supervise your compliance program.
It is required to always document a written Anti-Money Laundering (AML) compliance program.
Get a fractional AML officer to craft your AML policies and procedures and ensure your MSB is in good standing with FINTRAC.
6. Conduct Regular AML Audits
MSBs and fMSBs are regulated by a federal authority in Canada - Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).It is their duty to fight against financial crimes.
Thus, it is required to perform AML audits every two years to evaluate the efficiency of your compliance strategies and pinpoint areas that need improvement.
This will help you in mitigating any possible risks and address gaps in your company’s compliance program.
7. Set Up Bank Accounts
It is recommended to shortlist or select the financial institutions that regularly work with MSB/fMSB. Opening a bank account for an MSB/fMSB in Canada can be challenging as traditional banks can be a bit risk averse. Having a plan for opening a bank account for your MSB/fMSB is critical to the success of your business.
8. Draft Documents and Agreements
Always follow proper documentation, in order to prevent yourself from becoming a part of anything illegal.
It is important for all the license holders to keep thorough records of items such as terms of service, privacy policies, service agreements, and non-disclosure agreements, and comply with all the regulations.
9. Leverage Connector/Referral Services
Invest time in creating strategic alliances with a group of reputable vendors and professionals that can grant entry to key resources like workforce solutions, tech suppliers, and compliance specialists.
10. Train your employees
Give employees consistent training to improve their understanding of AML/CTF obligations and their involvement in adhering to regulations.
It is also important to maintain records proving that your staff has been properly trained.
The Fintech Team at Renno & Co. understands that staying in compliance requires thorough and constant vigilance, adaptability, and a proactive mindset.
We at Renno & Co. have a team of experienced fintech lawyers and compliance officers to support you navigate through the regulations and protocols.
We provide a team of experts to develop a solution that aligns with your specific business model, risk profile, and growth objectives.
We can help you at every step to make sure that you are able to run a successful business without any roadblocks.
Click here if you would like to learn more about our services.
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*The content on this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.
