In today’s increasingly digital and globalized economy, businesses that handle money transfers, currency exchange, or deal in virtual currencies play a critical role in the financial ecosystem and international trade. In Canada, such businesses fall under the category of Money Services Businesses (MSBs) and are subject to specific regulations. Whether you intend to initiate a cryptocurrency exchange, provide remittance services, or conduct foreign exchange operations, it’s essential to understand the definition of an MSB.
Knowing how to properly register and comply with the law is crucial to avoid hefty penalties and reputational damage, among other consequences of non-compliance.
Let’s break down what an MSB is, why registration matters, and what compliance measures businesses must follow in Canada.
In Canada, a Money Services Business is any entity or individual (excluding banks) that offers at least one of the following financial services:
• Foreign exchange dealing
• Money transferring services
• Issuing or redeeming money orders, traveler’s cheques, or similar instruments
• Dealing in virtual currencies (buying, selling, or transferring digital currencies)
• Crowdfunding platforms (in some cases, depending on how funds are managed)
• Payment service providers
• Armored car services
• Cheque cashing services
According to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada’s financial intelligence unit, all MSBs are legally required to register with FINTRAC and adhere to Canada’s anti-money laundering (AML) and anti-terrorist financing (ATF) regulations.
Operating as an unregistered MSB in Canada is not only risky, it’s illegal. FINTRAC has the authority to impose significant administrative monetary penalties (AMPs) and even pursue criminal charges against non-compliant entities. Beyond legal consequences, registration lends credibility and increases the valuation of your business, particularly in sectors like crypto and international finance, where trust is paramount.
If your business offers any services covered under the MSB umbrella, you are required to register with FINTRAC before launching operations. This includes both Canadian and foreign companies offering MSB services to Canadian clients.
For those looking to register, AML Incubator can help: Register MSB in Canada
What some people don’t know about this registration is that it is technically free. That’s right. If you know what you’re doing and are comfortable with filling out paperwork, you can do it yourself.
Once registered, this opens the doors to banking relationships, partnerships, and investor confidence, all of which typically require evidence of regulatory compliance. And if they don’t, you should enhance your due diligence and ask yourself “why?”.
Now comes the more complicated aspect of owning an MSB: Maintaining compliance. Because, once registered, MSBs must comply with a range of obligations under Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). This is where most MSBs fail.
Obligations include but are not limited to:
Businesses must verify the identity of their clients when certain thresholds or transaction types are met, such as large cash transactions or international wire transfers.
MSBs are required to keep detailed records of transactions, including client identification information, for five years. This allows FINTRAC to audit and investigate suspicious activity if and when necessary.
MSBs must file specific reports with FINTRAC, including:
• Large Cash Transaction Reports (LCTRs) for cash amounts of $10,000 or more
• Electronic Funds Transfer Reports (EFTRs)
• Suspicious Transaction Reports (STRs) when there’s reasonable suspicion of money laundering or terrorist activity
Failure to submit these reports accurately and promptly can lead to serious problems.
Every MSB must implement a comprehensive written compliance program.
• Appointing a dedicated compliance officer
• Developing written compliance policies and procedures
• Conducting a risk assessment of business operations
• Training staff on AML/ATF responsibilities
• Performing ongoing monitoring, external audits, and periodic effectiveness reviews
Read more about FINTRAC’s guidelines
FINTRAC routinely audits MSBs and expects a documented and functional compliance regime.
The rise of digital assets like Bitcoin and Ethereum has expanded FINTRAC’s regulatory scope. Since June 2020, entities dealing in virtual currencies are officially considered MSBs in Canada. This includes crypto exchanges and wallet providers.
Canadian regulators are especially concerned about anonymity and cross-border risks in the crypto space. As such, crypto MSBs are expected to meet the same registration and reporting standards as traditional financial entities. You can read more about these requirements in the FINTRAC guidance for virtual currencies.
1. Banking Access:
Even after registering with FINTRAC, MSBs, especially those in crypto, may face challenges opening business bank accounts. Some financial institutions are cautious due to perceived risks, so demonstrating a strong compliance framework is usually what tips the scale towards granting banking access.
2. Cross-Border Operations:
Foreign MSBs offering services to Canadians must register with FINTRAC as well. This adds a layer of complexity for global companies and necessitates a clear understanding of both domestic and international compliance obligations.
3. Keeping Up with Regulatory Changes:
AML and financial crime regulations in Canada evolve rapidly. Businesses must actively monitor policy updates from FINTRAC and other regulatory bodies like the Office of the Superintendent of Financial Institutions (OSFI).
Registering as an MSB in Canada is not just a formality—it’s a legal obligation that positions your business as a legitimate player in the financial sector. From meeting FINTRAC’s compliance requirements to reporting suspicious activity and implementing a robust internal program, the responsibilities are significant but necessary.
Whether you’re launching a traditional remittance business or a cutting-edge crypto platform, understanding your obligations as an MSB will help you operate lawfully, gain trust, and build a resilient business. If you’re unsure where to start, consulting FINTRAC’s MSB registration guidance is a strong first step.
By taking compliance seriously from the outset, you’ll avoid regulatory pitfalls and position your venture for sustainable growth in Canada’s evolving financial landscape.
Photo: iStock
