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An MSB by Any Other Name

What’s in an MSB?

Under Canadian federal legislation, a money services business (MSB), in Canada, is a person or entity engaged in the business of any of the following activities:

  • Foreign exchange dealing;
  • Remitting or transmitting funds by any means or through any person, entity or electronic funds transfer network; or
  • Issuing or redeeming money orders, traveller’s cheques or other similar negotiable instruments (except for cheques payable to a named person or entity).

More detailed guidance on these specifications can be found in FINTRAC Interpretation Notice no. 1, published by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). There is also a number of excellent guidance documents for MSBs available on FINTRAC’s website.

Payment Service Providers (PSPs) and Payment Processors

We’ve had a lot of MSBs lately calling to ask if they can simply declare themselves as payment service providers (PSPs) or payment processors rather than MSBs.

The short answer is “no.”

The long answer is “only if you change your business model to include only PSP activities.”

PSP or payment processing services, in FINTRAC’s view are quite restricted. These include providing payment processing services for the purposes of:

  • Payroll and commission payments, or
  • Tuition fee payments, or
  • Utility bill payments, or
  • Mortgage and rent payment.

These services do not, generally, involve any element of foreign exchange. While this is probably not the answer that many MSBs are looking for, especially those that are labouring to maintain banking relationships in the current climate, it is important information. Operating an MSB without registering with FINTRAC or maintaining a compliance program can lead to penalties including administrative monetary penalties (AMPs) and the publication of the MSB’s name on FINTRAC’s website. To date, 36 MSBs have received a total of $814,805 in AMPs.

Corollary Services

There are also cases where MSB type activities are performed as a “corollary” another product or service. In these instances, the business does not offer MSB type products or services to the public as standalone services, but provides these in order to facilitate other services. The most common exemption that we have seen relates to lending services.

For example: A company that is in the business of automotive lending (loans) might make a payment on its customer’s behalf to a car dealership. In this case, the payment that is remitted to the car dealership could be considered “remitting or transmitting funds by any means or through any person, entity or electronic funds transfer network” (which would be an MSB service), however, it is only remitted for the purpose of issuing the loan, and is considered a corollary.

There are, however, a number of cases that might appear to be corollary services on the surface, which are not. Unless your business model is identical to a business model where FINTRAC has already issued a policy interpretation citing the MSB services offered as a corollary, we highly recommend seeking a policy interpretation from FINTRAC in order to ensure that you are not carrying out MSB business in the regulator’s view.

FINTRAC’s Policy Interpretations – Just Ask

Fortunately, FINTRAC publishes its policy interpretations on its website. We’ve pulled together the most relevant of these in this document.

MSB PSP FINTRAC Policy Interpretation at 16Jan2017

FINTRAC’s policy positions are provided as guidance to the industry. If you have specific questions about your business model, you may contact FINTRAC directly via email at: guidelines-lignesdirectrices@fintrac-canafe.gc.ca.

There is no cost to contacting FINTRAC directly, however, it generally takes 4-8 weeks (in our experience) to receive a response in writing. We recommend reading and referring to FINTRAC’s existing guidance (including guidelines and policy interpretations) in order to frame your question effectively.

Need a Hand?

If you have questions about this document, would like to receive a copy in Word, or need assistance with compliance, please feel free to contact us. We aim to answer all queries within 2 business days.

Phone: (844)919-1623

Email: info@outliercanada.com

Web Form: https://www.outliercanada.com/contact-us/

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