Operating as a Money Service Business (MSB) in Canada can be difficult if you've misclassified your company category. That's because different FINTRAC MSB regulations apply to foreign businesses.
You may wonder whether you qualify as a local or foreign MSB in Canada. Fortunately, you don't have to look far. We're here to help you with a comprehensive guide about Canada MSB classification.
MSB Classification: Criteria For Local Money Service Business
FINTRAC is the key regulatory authority in Canada that prevents MSBs from committing crimes. The organization has set strict regulations such as a thorough FINTRAC MSB registration process.
You also have to meet the specific criteria set by FINTRAC for qualifying as a local MSB:
- You Offer A FINTRAC MSB Service
Canada has various business sectors, but not every company is required to register as a FINTRAC MSB. To qualify as a local money service business, you must offer one or more of the following services:
- Foreign exchange transactions
- Transmitting or remitting funds
- Virtual currency transactions
- Money order issuance
- Crowdfunding services
These financial services are regulated by FINTRAC to prevent crimes such as terrorist financing. This is why, if you’re offering these services, you qualify as a Canadian MSB.
- You Have A Business Place In Canada
A MSB qualifies as a local business if they have an office within Canada. The office address must also be your MSB’s registered business location.
If you have a business place, but it’s not registered under your Canadian MSB, your qualifying status may differ. Other criteria you can fulfill for qualifying as a local money service business include:
- Your MSB is incorporated in Canada
- Your employees or office branches are in Canada
In short, having a Canadian physical presence can significantly affect your MSB classification.
MSB Classification: Criteria For Foreign Money Service Business (fMSB)
MSB classification seems easy when understanding the criteria for local business. However, you may be confused about foreign MSB requirements.
Let’s look at the things that indicate you qualify as a fMSB:
- Your MSB Doesn’t Have A Canadian Business Location
A FINTRAC MSB doesn’t qualify as a local entity if they don’t have a business location in Canada. Instead, your company will be classified as a foreign MSB.
Keep in mind, not having a business place in Canada means:
- Your FINTRAC MSB is not incorporated in Canada
- You don’t have a physical office in the country
- Your FINTRAC MSB don’t have any employees or compliance agents in Canada
If you don’t fulfill all three points, your MSB may qualify as a local business.
- Your FINTRAC MSB Offers Directing Services
When MSBs offer directing services, they come under the foreign MSB classification. These services involve specific offerings that are directed at a person or entity.
For example, you may be offering directing services if your MSB:
- Markets its services in Canadian newspapers, blog websites, or other advertising platforms
- Has a Canadian domain website
- Is listed in a business directory of Canada
Even if your FINTRAC MSB meets only one of these criteria points, they must register as a foreign business.
- You Offer Services To Clients In Canada
Your MSB may not have a place in Canada for business, but it may be offering services to clients within this nation. If so, your company will fall under the foreign MSB classification.
Remember a client in Canada doesn’t necessarily have to reside in the nation. A customer can qualify as a Canadian client if they:
- Have an address in the country
- Have a verification document issued by a Canadian province
- Have a bank account, credit card, or payment rail system in Canada
Whether a client is living in the country temporarily or not, they will still be called a customer in Canada. This is especially true if one or more of the earlier points have been fulfilled.
MSB Classification: Who Does Not Qualify As A FINTRAC MSB Or fMSB?
Some situations make MSB classification complex because you may not fall in local or foreign criteria. If you’re experiencing such trouble, you can consider the following points:
- You don’t qualify as a FINTRAC MSB and fMSB if you offer financial services as an agent in the country
- Your business doesn’t fall under MSB classification if you perform a money service while providing some other services
FINTRAC reserves the right to reject your MSB or fMSB registration if you don’t meet qualifying criteria. Consulting a fintech firm may help you understand your business status before submitting a FINTRAC MSB registration application.
FINTRAC Compliance Requirements For Local And Foreign MSBs
Both local and foreign MSBs are required to register with FINTRAC and comply with Canadian AML laws. Below are the key compliance obligations:
- All MSBs must register with FINTRAC before they begin operations in Canada
- MSBs must establish a comprehensive AML compliance program that includes appointing a compliance officer and developing written AML policies and procedures
- MSBs must verify the identity of customers through proper documentation
- MSBs must submit various reports to FINTRAC, such as Suspicious Transaction Reports (STRs), Large Cash Transaction Reports (LCTRs), Electronic Funds Transfer Reports (EFTRs)
- MSBs must keep records of transactions, customer identifications, and compliance program details for at least five years
FAQs
How Do You Identify A MSB?
Identifying a MSB is easy if you conduct a FINTRAC MSB license search. You can also use this search method to determine the registration status of your money service business.
How To Know If I’m A Foreign MSB?
Visiting the FINTRAC MSB registry online and checking the "Foreign MSB Indicator" will help you know your status. If you're a fMSB, the indicator column will show a "Yes" in front of your business name.
How Can I Have A Canadian Physical Presence To Qualify As A Local MSB?
Hiring a compliance officer in Canada can help you enjoy a physical presence in the country. The agent may also purchase an office under your business name to help you with local MSB classification.
Meet Renno Co. & Fintech Expert For MSB Classification And Registration
FINTRAC MSB classification seems difficult, but a fintech law firm can make it a breeze for you. The good news is you don’t have to look far.
Our experts have vast knowledge of MSB classification. They can make you aware of your business status within a few seconds of looking at your MSB registration details.
Message us now to schedule an appointment with our fintech expert to navigate local or foreign MSB classification.
