If your business deals with currency exchange, money transfers, or virtual currencies, you may fall under Canada's definition of a Money Services Business (MSB). Determining whether your operations meet this classification is essential, as it directly affects your obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Failure to comply could result in regulatory penalties and reputational damage. This article provides a detailed, step-by-step guide to understanding MSB classification and compliance in Canada.

 

What Is a Money Services Business (MSB) in Canada?

 

A Money Services Business in Canada refers to any individual or entity that offers financial services such as foreign exchange dealing, money transferring, issuing or redeeming money orders or traveler’s cheques, or dealing in virtual currencies. Under Canadian law, these businesses are subject to specific regulatory requirements enforced by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

 

MSBs are considered gatekeepers of the financial system and must implement robust anti-money laundering (AML) measures. These regulations are designed to protect the financial ecosystem from being exploited by criminal actors.

 

What Activities Qualify as a Money Services Business?

 

Several financial operations trigger MSB status. If your business conducts any of the following activities as a service to the public, it likely qualifies as an MSB:

 

• Foreign exchange dealing (exchanging one currency for another)
• Money transferring (transmitting money from one location or person to another)
• Issuing or redeeming money orders, traveler’s cheques, or similar negotiable instruments
• Dealing in virtual currency, including both exchange and transfer services
• Crowdfunding (Case by Cases)

 

Each of these activities, when conducted on a commercial scale or as a core business service, falls within the regulatory scope of FINTRAC and must comply with associated obligations.

 

Businesses and Professions Commonly Regulated as MSBs

 

A wide range of businesses and professional service providers in Canada are subject to MSB regulations due to the nature of their operations. These entities may not always operate as traditional financial institutions, but can still fall within the MSB framework under FINTRAC regulations.

 

Examples include:

 

• Remittance service providers: These businesses facilitate domestic and international money transfers for individuals and corporations. They often operate through physical retail locations or digital platforms.

 

• Currency exchange bureaus: Whether brick-and-mortar kiosks or online platforms, these businesses exchange foreign currencies and are frequently subject to MSB oversight.

 

• Cheque cashing services: Companies that offer cheque cashing, money orders, and prepaid access products often fall into the MSB category.

 

• Fintech companies: Many startups and platforms offering embedded financial products, such as digital wallets, peer-to-peer payment systems, or cross-border transaction tools, may qualify as MSBs depending on the services provided.

 

• Cryptocurrency exchanges and wallet services: Businesses dealing in virtual currencies, including those that allow the exchange or transfer of digital assets on behalf of others, are now explicitly recognized as MSBs.

 

• Payroll processors and payment aggregators: If these companies handle funds transfer on behalf of multiple clients, they may fall within MSB regulations depending on their role in the payment chain.

 

It's also worth noting that businesses offering MSB-like services as a secondary feature, such as online marketplaces or investment platforms facilitating fund movement, may still be classified as MSBs if they perform qualifying functions. The determining factor is not the business label but the activity itself.

 

How to Determine If You Qualify as an MSB in Canada

 

To assess whether your business qualifies as an MSB, consider the following:

 

• Nature of services: Are the financial services offered to the public?

 

• Frequency and volume: Are these services a core or regular aspect of your business operations?

 

• Customer engagement: Do customers rely on your business for transferring money, exchanging currencies, or using virtual assets?

 

FINTRAC evaluates businesses based on their functional activities, not their stated business model. Even if financial services are a secondary feature, you may still be required to register and comply.

 

If you’re unsure about your status, you may want to outsource AML compliance to professionals who can assess your operations and determine whether registration is mandatory.

 

How to Register as a Money Services Business with FINTRAC

 

Registration is mandatory for MSBs operating in Canada. Here’s how to complete the process:

 

1. Apply for preregistration through the MSB registration portal.
2. Provide business details, including the name, business number, structure, and service offerings.
3. Disclose beneficial ownership and details of senior management.
4. Specify the types of MSB activities you conduct.
5. Implement a compliance program that includes AML policies and procedures.

 

Once submitted, FINTRAC will review your application. You’ll be issued an MSB registration number upon approval. Keep in mind that registration is not a one-time task. You are required to maintain your profile and renew your registration every two years.

 

Compliance Requirements for MSBs in Canada

 

Once registered, MSBs must adhere to a robust set of obligations, including but not limited to:

 

• Implementing a full AML compliance program with policies, procedures, risk assessments, and employee training.

 

• Designating a compliance officer responsible for oversight.

 

• Verifying client identity, for transactions over CAD 1000.

 

• Keeping records of all reportable transactions and business relationships.

 

• Filing reports for suspicious transactions (STRs), large cash transactions (LCTRs), and electronic funds transfers (EFTRs).

 

 

Annual compliance reviews are also required. As part of your AML Compliance for MSBs, your review should cover:

 

• Effectiveness of the current risk-based approach

 

• Training completion rates and content updates

 

• Internal audit outcomes and any deficiencies identified

 

• Updates to regulatory changes

 

• The performance of the compliance officer

 

 

Failure to meet these obligations can lead to FINTRAC fines, some of which can reach into six figures depending on the nature and frequency of non-compliance.

 

MSB vs Non-MSB: Common Misunderstandings

 

A common misconception is that businesses with minimal financial activity or those acting as agents for registered MSBs are exempt. However, FINTRAC assesses qualification based on functional roles, not assumptions.

 

For instance, a business facilitating currency exchange on behalf of another company may still require registration unless it is truly operating as an employee or independent agent under a principal MSB. Similarly, a startup facilitating peer-to-peer transfers using crypto wallets could be considered an MSB depending on its infrastructure and customer interaction.

 

Crypto Businesses and MSB Compliance in Canada

 

Since June 1, 2020, businesses dealing in virtual currencies are officially recognized as MSBs under Canadian law. This includes companies offering:

 

• Virtual currency exchange (fiat to crypto or crypto to crypto)

 

• Virtual currency transfer services (sending/receiving on behalf of others)

 

 

Crypto MSBs must follow the same compliance standards as traditional MSBs. That includes registration with FINTRAC at least, maintaining a compliance program, and reporting specific transaction types. This regulatory expansion reflects Canada’s commitment to closing gaps in financial transparency within the virtual asset sector.

 

Businesses unsure about their obligations should consider obtaining an MSB licence and working with professionals to ensure regulatory readiness.

 

What Happens If You Don’t Register as an MSB?

 

Operating an unregistered MSB is a serious offense. FINTRAC can impose administrative monetary penalties and may publicize violations, impacting your business reputation.

 

Penalties vary based on the nature of non-compliance, the size of the business, and whether the breach is considered minor, significant, or very serious. In some cases, enforcement may include criminal referrals. Businesses that fail to register or do not file the required reports are subject to heightened scrutiny and enforcement actions.

 

Consulting for MSB Determination and Compliance in Canada

 

Given the complex and evolving nature of MSB regulations, many businesses choose to engage experts. AML Incubator offers AML compliance services; AMLI professionals assist with assessing whether a business qualifies as an MSB, preparing compliance programs, training staff, and filing required reports with FINTRAC.

 

Whether you're launching a fintech startup, expanding your crypto exchange, or operating a traditional money transfer service, consulting experienced AML professionals can help mitigate compliance risks and build long-term regulatory resilience.