Buying An MSB? Here’s What You Need To Know

Money Services Businesses (MSBs) play a vital role in Canada's financial ecosystem, providing essential services like currency exchange, money transfers, and bill payment services. 

These businesses must also follow the regulations under the Retail Payment Activities Act (RPAA) and Proceeds of Crime and Terrorist Financing Act.

The rules also apply if you’re buying an MSB in Canada. To help you, we’ve developed this comprehensive guide about legally purchasing an existing MSB in Canada.

How To Buy A Money Service Business In Canada?

Buying an MSB will be a breeze if you know the right steps. Take a look below to understand the complete purchasing process in Canada:

1. Perform Due Diligence About The Money Service Business

Before buying any company in Canada, you must perform your due diligence. For example, you must conduct a financial assessment and review the financial statements of at least the past three years.

This will help you determine the profit margin of the MSB and its revenue stream. Other things you must do under due diligence include:

• Evaluate existing customer base and transaction volumes 
• Assess current compliance costs and operational expenses 
• Review existing banking relationships and partnerships
• Conduct a FINTRAC Canada MSB search to check the company's current status and history
• Ensure the MSB is compliant with RPAA and other regulations

If you’re content with the results of the due diligence, you can proceed with buying an MSB in Canada.

*NOTE: The above applies to operational MSBs that are being purchased. However, it’s most likely that if you are purchasing an MSB, it will be a shelf entity with no operations. As a result, due diligence will focus more on the status of the business with FINTRAC and the Bank of Canada, as well as the existing compliance policy. 

2. Sign A Shareholder Purchase Agreement With The Current MSB Owner

If you and the MSB owner have agreed about the company purchase, developing a shareholder purchase agreement is the next step.

Working with legal counsel would help you develop this essential document promptly and without errors. Keep in mind the purchase agreement is an important document that must outline:

• Sale terms and the purchase price of the MSB
• Asset vs. share purchase considerations
• Transition period details
• Non-compete clauses
• Employees transfer contracts
• Customer transfer agreements
• Intellectual property rights
• The transition of compliance responsibilities

Once the document is ready, you and the MSB owner must sign it to start the MSB ownership transfer process.

3. Develop Updated Documents

Many businesses believe signing a shareholder purchase agreement is the last step of buying an MSB in Canada. However, that is a misconception.

There are other things you must do before the ownership transfer is complete. The first step after signing the purchase agreement is developing an updated company document.

You and the MSB seller will have to draft resolutions and sign them to approve the change in ownership. Remember when a company is being bought by another, the following changes may occur:

• Change in company director
• Shifting of location
• Change in employees

If you will be ending old employee contracts and hiring new staff for the MSB, you must detail the changes in an updated corporate document.

4. Change The Corporate Registry

Once the changes under the updated document have been approved by the seller, you must also update the corporate registry.

This means you will have to file different notices to confirm the changes. For example, the MSB you’re buying may be located in Vancouver.

However, you will be changing its location to Ontario. In such a case, you must file a change of address under the Vancouver corporate registry services.

You must repeat the same step for all the changes you’re implementing after buying the MSB. So be ready to file multiple notices when purchasing a money service business.

5. Notify FINTRAC

FINTRAC is an independent government agency that prevents MSBs from performing illegal activities such as:

• Money laundering
• Terrorist financing

This is why whenever a new company is buying an MSB, they must inform FINTRAC to comply with regulations.

Typically, when you buy a new MSB, the compliance officer is changed. There may also be changes with the registration of the MSB.

You must also let the agency know about all key changes that will be occurring with the MSB purchase. If you don’t inform FINTRAC about your new purchase, you will be violating various regulations.

Keep in mind that the changes don't necessarily have to be approved by FINTRAC. A simple notice is enough to ensure you comply with the agency's regulations.

6. Inform The Bank Of Canada

The last step in buying an MSB in Canada is informing the Bank of Canada. Remember every MSB in the country is required to register under the RPAA.

Since of Bank of Canada manages RPAA compliance, you must inform it. The rules for notifying the bank differ, depending on the registration timeline:

• Between 15^th November 2024 To 7^th September 2025

If you purchase a new MSB within this timeline, you only have to update the bank. You can submit an amendment to the registration application to the Bank of Canada.

Once the application has been submitted and before a change of control occurs, the MSB in question will have to stop its operations for 60 days. This is the minimum waiting period that every money service business has to follow.

However, don't worry that this waiting period will affect your timeline for launching the new MSB. During these 60 days, you can work on setting up the company's infrastructure and get it banked.

Once the waiting period is over, your new MSB can start its operations immediately.

• After 8^th September 2025

If you’ll be buying an MSB after 8^th September 2025, the rules of informing the Bank of Canada will change. Instead of an amendment application, now you’ll have to file for a new registration.

This means you’ll have to re-register the company before your acquisition is complete. The waiting period is also different under this timeline.

You may have to wait 45 to 180 days or more, depending on the time required to review your re-registration application. Keeping in mind the following things would help you:

• Bank of Canada will determine whether to approve or reject your application within 45 days
• The Minister has about 60 days to decide whether they want to review your application or not. They can also increase the waiting period by one or more 60-day periods
• If the Minister decides to review your re-registration, they have up to 180 days after the decision day to complete the review. This period can also be prolonged by one or more 180-day periods if needed.

Once the registration application has been approved by the Bank and Minister, you can resume your new MSB’s operations.

If you proceed with the change in control before re-registration is approved, you’ll be violating the RPAA registration guidelines.

Reach Out To Renno & Co. Fintech To Start Your Process Of Buying An MSB In Canada

Buying an MSB in Canada requires you to follow various rules and regulations. If you’re not compliant with even one rule, you may not receive a license for your new MSB.

This is why hiring a legal expert will help you buy an MSB without any complications. So reach out to Renno & Co. Fintech today to meet our skilled team of legal experts.

We can help you with MSB registration, RPAA compliance, and more in Canada.

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