Canada MSB, an alternative to European EMI license
Money Service Business (MSB) license
To launch your fintech project and provide payment services you need permission or authorisation to perform these operations.
Canadian Money Services Business (MSB) license is one of the several options you can decide for, to register your payment business and start operating immediately. Obtaining an EMI license in any of the EU countries or in the UK is a very long and expensive process; it can take over 12 up to 18 months. At least you will need 3 to 4 months to prepare documents, 9 to 12 months to get authorisation from the regulator, 4 to 6 months to actually launch your basic fintech infrastructure. Reason why new entrepreneurs are usually forced to look for alternative options to start a fintech company – faster than obtaining an authorised PI or EMI license.
There are several options, including to operate as an agent under the umbrella of a licensed provider, to register as a small payment institution or, as a 3rd option, applying for a Canadian Money Services Business (MSB) license.
What is a Canadian MSB license?
This is a registration in a special register of businesses providing payment services, which is maintained by the Canadian regulator, the Financial Transactions and Reports Analysis Centre of Canada – FINTRAC, Canada’s financial intelligence unit (FIU). The Centre assists in the detection, prevention and deterrence of money laundering and the financing of terrorist activities.
Money Services Business (MSBs) must fulfil specific obligations as required by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations, to help combat money laundering and terrorist activity financing in Canada.
Why Canada
Canada is known for having one of the world’s most stable economies, offering a favorable environment for fintech companies to operate. With strong financial regulations, ongoing innovation, and various sales channels, Canadian businesses thrive in this supportive climate.
The country’s flexible government requirements for financial service companies, adherence to global regulatory standards, and strong legal protection make Canada an appealing choice for businesses.
TBA & Associates offers expert assistance in obtaining a Canadian MSB license through a turnkey solution, ensuring:
A fast time-to-market (just three months)
A regulator supportive of international operations
Minimal local presence requirements
Financial businesses serving customers must comply with Canadian law to aid the government in detecting criminal activities and fighting money laundering.
Services Canadian MSBs can provide
Foreign Exchange Dealing
Involves conducting transactions where one currency is exchanged for another (e.g., converting USD to CAD).
Money Transfer
Facilitates the transfer of funds from one individual or organization to another through electronic funds transfer networks or other methods.
Merchant Acquiring
Allows businesses to accept card payments, either through a POS terminal or an online payment gateway.
Dealing in Virtual Currencies
This covers both virtual currency exchange and transfer services.
Virtual currency exchange services involve:
Exchanging funds for virtual currency,
Converting virtual currency into funds, or
Trading one virtual currency for another.
Virtual currency transfer services include:
Transferring virtual currency on behalf of a client, or
Receiving a virtual currency transfer to remit to a designated recipient.
With new Canadian legislation that took effect in June 2020, cryptocurrency exchanges and payment operators dealing in cryptocurrencies are now officially recognized as financial service providers.
Crowdfunding Platform
These services involve providing and maintaining a platform for individuals or entities to raise funds or virtual currency for themselves or others.
Payment Service Provider
Facilitates the transfer of funds for the payment of goods or services, typically through debit, credit card, or prepaid payment products.
The MSB license also grants permission for activities such as card issuing and IBAN account opening, effectively functioning as an online bank for money transfers and cryptocurrency services.
Thanks to the Canada-EU trade agreement, MSBs can also extend their services across the entire EU.
Money Service Business (MSB)
Foreign Money Service Business (FMSB)
In Canada, two types of financial businesses are required to comply with the obligations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA): Foreign Money Service Businesses (FMSBs) and Money Service Businesses (MSBs).
An FMSB is a non-bank financial institution that offers financial services and operates outside of Canada, whereas an MSB provides financial services within Canada. Both types of businesses must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and adhere to the reporting and recordkeeping requirements set out by the PCMLTFA.
Who will be a Money Services Business (MSB)?
A business qualifies as a Money Services Business (MSB) if it meets the following criteria:
It offers clients at least one MSB service, such as: currency exchange; transactions involving currency conversion; transferring funds, including through bank card transfers; facilitating financial transfers between individuals or entities; or acting as an intermediary between a payer and payee for payments related to bills, wages, loans, mortgages, utilities, etc. (excluding accepting payments on behalf of the payee solely for debt repayment with payment instructions directed to a third party).
It issues or redeems money orders, traveler’s checks, or other similar negotiable instruments (excluding cashing checks for specific individuals or merely selling traveler’s checks issued by another company).
It provides virtual currency services, such as exchanging fiat currency for virtual currency, exchanging one virtual currency for another, transferring or receiving virtual currency, or offering or managing a crowdfunding platform to raise funds or virtual currency.
It operates in Canada, has a physical office in the country, employs staff or agents in Canada, or has established a branch office within Canada.
Who will be a Foreign Money Services Business (FMSB)?
A business is classified as a Foreign Money Services Business (FMSB) if it meets the following criteria:
You offer any services that qualify as those provided by a Money Services Business (MSB), but with the following distinctions:
You do not have a physical presence in Canada—this means no Canadian registration, no office, and no employees, agents, or affiliates located in Canada.
Your business provides services to individuals or entities in Canada, which may result from activities such as: marketing or advertising specifically aimed at Canadian clients, managing a “.ca” domain, or being listed in a Canadian business directory.
If your company serves customers in Canada, it is determined by factors such as: the customer’s residential address, documents issued by the Canadian government, Canadian bank-issued cards, or if the customer is temporarily living, working, studying, or vacationing in Canada.
MSB and FMSB licenses differences
| Characteristics | MSB | FMSB |
| Type of Currency – Fiat and Cryptocurrency | Canadian currency | Foreign currency |
| Included Currency Services | Yes | Yes |
| Registration Requirement | Yes | Yes |
| License Requirement | Yes | Yes |
| Activity Control | FINTRAC | FINTRAC |
| Customer Base | Individuals and legal entities | Individuals and legal entities |
| Local Address Requirement | Yes | No |
| Local Staff Presence | Yes | No |
| UBO/Director Presence | No | No |
| Branch Offices in Canada | Yes | No |
| Compliance Officer Requirement | Yes | No |
Benefits of MSB license in Canada
The primary Advantages and Benefits of acquiring an MSB License in Canada
Canada is recognized as one of the world’s most stable economies, boasting a diverse range of fintech companies thriving within a regulatory environment conducive to business. With stringent financial regulations, a culture of ongoing innovation, and a plethora of sales avenues, Canadian enterprises embody excellence in the financial sector.
Outlined below are the primary advantages and benefits of acquiring MSB licenses in Canada:
Ensuring Legal Compliance
Every financial service organization operating in Canada must secure an MSB license to operate within the bounds of the law. Obtaining these licenses guarantees legal operation, ensuring adherence to regulatory standards and compliance with applicable laws.
No Capital Deposit Required
In contrast to licensing requirements in other jurisdictions, the Canadian MSB licensing process doesn’t necessitate a minimum authorized capital. Typically, the process involves company registration, appointing an anti-money laundering officer, and selecting a director.
No Mandatory Physical Establishment or Staff
Similarly, unlike some other jurisdictions, there’s no obligation for a physical business location or staff members (except for a compliance officer).
Offering Fiat and Crypto Services
The Canadian MSB license permits the provision of services in both traditional fiat currency and cryptocurrencies. This stands in contrast to Europe, where separate licenses are typically required for fiat and cryptocurrency transactions.
Enhanced Credibility in Financial Partnerships
Establishing partnerships with banks, payment processors, and networks is crucial in the financial landscape. Holding an MSB license enhances credibility, facilitating smoother negotiations and collaborations with these entities. It demonstrates a commitment to regulatory compliance and financial stability, making the licensed entity a more desirable partner.
Efficient Licensing Process
Compared to European counterparts, the MSB licensing process in Canada is relatively expedient. The timeframe typically ranges from two to five months, depending on document submission. This efficiency is further underscored by the quick registration process with the BC registrar (1-2 days) and approval from FINTRAC (1-2 weeks).
Reputation for Reliability
Canada’s financial sector is esteemed for its safety, stability, and reliability, thanks to robust banking institutions. This solid foundation, coupled with ongoing innovation, fosters a secure and trustworthy business environment.
Versatility
The MSB license in Canada enables license holders to engage in various services, including foreign exchange transactions, fund remittance, money order issuance, virtual currency trading, and crowdfunding facilitation. This versatility appeals to business owners, offering flexibility for diverse strategies and attracting potential investors.
Requirements for MSB application
Company name
Must contain at least two words, one of them should describe the main business activity of the company, for example, “payments”, “remittance” etc. Abbreviations are not accepted.
Registered address
Capital
Management
At least one director private person with experience in the financial sphere has to be appointed at the stage of incorporation, and a qualified compliance officer as well as a sound AML/CFT program and compliance system should be appointed and in place at the stage of starting operational activity of the company. Directors and AML responsible people do not have to be local if the company is registered in British Columbia or Ontario.
Ownership
Compliance reporting
How to register and run the Money Services Business?
Procedure for obtaining MSB License in Canada
Time scale
Step 1
Client Due Diligence
Gathering basic information; providing a preliminary set of documents for further execution; clarity on project scope and budgets.- Expected time scale: up to 2 weeks
- Inclusions:
- Preliminary project analysis
- KYC collection and business description
- AML/CTF policy preparation
Step 2
Registering a business in Canada
You can choose any province to set up a company. For non-residents, British Columbia is the most suitable option. Company registered under the approved name and its legal address.- Expected time scale: 4 to 6 weeks
- Inclusions:
- Choose company name
- Rent an office and sign an agreement
- Determine share capital
- Prepare a set of notarised corporate documents
- Appoint employees with financial expertise
Step 3
Opening a bank account
A corporate account is opened, and the entity complies with the requirements of the tax authorities. Company registered under the approved name and its legal address.- Expected time scale: 4 to 5 weeks
- Inclusions:
- Preparation of notarized documents
- Preliminary talks with the payment institution and the account opening process
- Payment of share capital
Step 4
Pre-application work and registration
Submitting documents for an MSB license. A functioning company in the legal framework of Canada.- Expected time scale: up to 2 weeks
- Inclusions:
- Preparing and adapting documents for AML/CTF cryptocurrency company operations
- Search, employment, training, and adaptation of employees
- Submission of license application
- Collecting additional documentation as requested by the FinTRAC representative
- Negotiating with FinTRAC representative
- Compliance with FinTRAC representative requirements
Step 5
Registration process (unless a clarification request was sent to the applicant following the submission)
Obtaining an MSB license and the appearance of the company in the registry of licenses.
Company registered under the approved name and its legal address.
- Expected time scale: up to 4 weeks
- Inclusions:
- Submitting the documents to FINTRAC
- Leading the Client and conducting negotiations with the regulator and full support during the entire process until the registration is accomplished
Legislation and Regulation applicable to
MSB and FMSB in Canada
Companies offering financial services in Canada are required to adhere strictly to laws aimed at preventing money laundering, criminal activities, and terrorist financing.
They must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and follow the guidelines outlined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
As Canada’s financial intelligence unit, FINTRAC plays a critical role in the country’s anti-money laundering (AML) and anti-terrorist financing (ATF) regime. It works alongside the Department of Finance to monitor financial transactions reported by registered companies, aiming to detect and prevent money laundering and terrorism financing.
The Proceeds of Crime and Terrorist Financing Act is designed to combat cross-border criminal transactions that facilitate money laundering or fund illegal activities. It sets clear standards for financial service providers and enforces penalties for non-compliance.
Canada’s AML and ATF regulations are among the most stringent worldwide. Businesses that fail to comply face severe fines and potential criminal charges. As a result, it is crucial for money service businesses to ensure full compliance with Canadian law, actively cooperate with FINTRAC, and regularly train their employees in anti-money laundering and terrorist financing prevention measures.
Services offered by TBA & Associates
– TBA & Associates is happy to assist you in applying for registration with the Bank of Canada.
– Our services include preparation of documentation and information required for submission, submitting the application to Bank of Canada, addressing any queries that the authorities have, etc.
– Once engaged, we will assist you in preparing all the documentation and information and we expect this will take around 2 to 3 weeks.
– Once the documents are finalized, we will monitor closely with the Bank of Canada and as soon as the web application (PSP Connect) is online, we will immediately proceed with the registration process.
Next Steps
– Kindly confirm if you meet all four criteria above.
– Kindly confirm if you require our assistance in applying for registration with the Bank of Canada.
– When you are ready to proceed, kindly advise to whom we should address the appointment letter and invoice.
– Thereafter, we will send you a simple appointment letter and a tailored invoice.
– Once we get this paperwork, our team will immediately start working on your engagement.
Feel free to let us know if you have any questions.
Our Business Development Team will be ready to guide and assist you.
FINTRAC Penalties for non-compliance
FINTRAC has the power to impose Administrative Monetary Penalties (AMPs) on organizations that fail to comply with the PCMLTFA and its associated regulations. This measure is designed to ensure adherence and safeguard Canada’s financial system from illicit activities such as money laundering and terrorist financing. Organizations that do not comply with the law may face fines reaching several million dollars.
In addition to AMPs, FINTRAC can also enforce other penalties against offenders. For instance, an organization may be required to rectify violations, and FINTRAC may demand further information or documentation from the entity. If an organization neglects to correct its violations or does not cooperate with FINTRAC, it could face criminal charges.
Therefore, maintaining regular compliance is a crucial aspect of the business strategy for companies involved in financial activities in Canada.
MSB/FMSB
Taxation for Money Services Businesses
Tax regulations and standards are essential for overseeing cryptocurrency activities. In Canada, cryptocurrency is classified as an asset rather than an official currency, meaning that transactions involving virtual currency fall under the Income Tax Act (ITA). The applicable tax rate ranges from 15% to 33%, depending on the annual income.
When a customer pays for goods or services using cryptocurrency, this is treated as a profitable (barter) transaction. Consequently, the value of such transactions must be included in the seller’s taxable income. Cryptocurrency entrepreneurs must take into account the tax rates of the province where their business operates and convert the cryptocurrency value to CAD for tax reporting purposes to verify the transaction with the IRS.
British Columbia offers the most favorable tax conditions for registered companies located on Canada’s west coast. The taxation framework here includes several distinctive features:
Companies registered in British Columbia are taxed only on income earned within the province, with a 0% tax rate on income generated outside Canada.
The corporate income tax rate is 12% for income exceeding CAD 300,000, making it one of the lowest rates in North America.
An additional tax credit allows the tax rate to be reduced to 2% for income up to CAD 300,000.
All companies in Canada are also required to pay a federal tax of 15%.
Additionally, the Canadian government advises entrepreneurs to regularly prepare reports on their cryptocurrency activities and include any profits or losses in their tax returns.
Reporting is a crucial aspect of cryptocurrency operations in Canada. The government encourages all entrepreneurs to consistently document their cryptocurrency transactions for tax compliance.
Under the Income Tax Act (ITA), profits derived from cryptocurrency activities are taxed as business income, meaning that 100% of the earnings are taxable. In contrast, if capital gains are reported for tax purposes, only 50% of a company’s profits are taxable. Therefore, entrepreneurs engaged in cryptocurrency transactions must meticulously track and report their profits and losses from buying, trading, or selling digital currencies in their returns. The reports should also include the transaction date and the corresponding price in Canadian dollars at that time.
FAQ about MSB license
What is an MSB in Canada?
An MSB, or Money Services Business, is an entity outside the traditional banking system that can carry out various financial transactions within Canada, including money transfer services, digital currency trading, payment processing, financial agency services, and currency exchange. MSBs in Canada are regulated under the Anti-Money Laundering and Counter-Terrorist Financing Act.
How do I obtain an MSB license in Canada?
To acquire an MSB license in Canada, you need to apply to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Your application should provide comprehensive information about your business operations, including details about the business model, the presence of a local office, identification of management, and banking information. After submission, FINTRAC will review the application and determine whether to approve or deny the license.
How long does it take to receive an MSB license?
The timeframe for obtaining an MSB license can vary from a few weeks to several months following company registration. If all required documents are in order, it typically takes about three weeks for FINTRAC to review the licensing package. However, if additional documentation is needed during the review, the process may take longer.
What are examples of MSBs?
Examples of MSBs include Western Union and MoneyGram, which offer money transfer services enabling customers to send and receive funds globally. More broadly, any company that provides electronic payments, credit services, currency conversion, remittance sales, or other financial transactions can be considered an MSB. This category encompasses both large financial institutions and small startups.
Who regulates MSBs in Canada?
In Canada, MSBs are regulated by the Financial Transactions and Reports Analysis Centre (FINTRAC), which monitors and gathers information on financial transactions to combat money laundering and terrorist financing. FINTRAC establishes the regulations and standards that MSBs must adhere to and is responsible for issuing licenses for financial activities.
Who does not qualify as an MSB or FMSB?
Entities do not qualify as an MSB or Foreign Money Services Business (FMSB) if they only act as agents providing one or more MSB services or offer other services related to MSB activities, such as acting as securities dealers. Additionally, not all financial institutions are categorized as MSBs or FMSBs; for instance, banks and investment companies generally fall outside these definitions due to differing regulatory frameworks.
What services can you provide with an MSB license in Canada?
Holding an MSB license in Canada allows businesses to offer services associated with electronic payments, such as money transfers, currency exchange, and the issuance and sale of remittances. This license enables companies to conduct transactions in both Canadian dollars and foreign currencies, domestically and internationally. Additionally, MSBs can engage with both individuals and legal entities, including international firms, which enhances opportunities for business expansion and customer base growth.
What are the AML risks for MSBs?
MSBs face AML (Anti-Money Laundering) risks, including the potential misuse of their services for money laundering, terrorist financing, and other illegal activities. They may also become targets for scams and cyberattacks, where perpetrators utilize their services for illicit purposes.
Noncompliance with AML regulations can result in severe consequences for MSBs, including substantial fines, license revocation, and criminal charges. Therefore, it is essential for MSBs to implement robust measures to mitigate money laundering risks and ensure compliance with AML laws.
Our services
Project management
This service assures our support and guidance throughout the process of obtaining your MSB registration approval, including the setup of a new company in Canada in any of the 10 Canadian provinces, except Quebec (which requires a separate and distinct registration with the AMF). A member of the Pay Compliance team will be present at the FINTRAC interview and help guide you through the process. One of the main advantages to acquiring a Canadian MSB license is the short licensing process (3-4 months).Corporate concierge
From corporate changes to certifications to authorisations to reports – we will deal with every local requirement for you, so that you can focus on the operations.Compliance support
We will provide a full compliance support to you including design/upgrade of policies, procedures, questionnaires, and forms to meet regulatory requirements; support client on-boarding, AML and KYC checks; liaise with regulators during regulatory examinations, investigations, and post examination remediation; Ad hoc compliance advice, regular compliance reviews, personalised one-to-one training, handling of all correspondence and statutory filings with regulators.Compliance programme
Comply with the Canadian regulation, a compliance program must be put in place for your company, which will be reviewed by FINTRAC. We can offer a written AML/CFT compliance program that meets Canadian and international standards customised for your business operations.
