What does a Money Services Business (MSB) mean? Understand how an MSB operates as well as the regulations for Canadian compliance and global requirements.
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What Does it Mean to be a Money Services Business?
The classification of the Money Services Business (MSB) category is crucial for consumers and businesses alike who want to deal with financial services outside of traditional banking. These types of financial service operations include money remitting, money transfer, currency exchange, domestic and international money transfer, foreign currency transactions, and cryptocurrencies. MSBs are prevalent in the FinTech and cryptocurrency markets.
What is an MSB?
An MSB in Canada is classified as any person or business that offers any of the following:
Should a business provide any of the above, they must register with FINTRAC and fall under the definition of a reporting entity as per the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
MSBs are regulated on a national and international scale in a collaborative effort to detect and prevent money laundering, terrorist financing, fraud, and other financial crimes.
In Canada, MSBs must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) before operating. Registration is required. Should an MSB be found operating without registered status, it will face enforcement actions, penalties, and even criminal charges.
ā” For info on Canadian MSB registration, see AML Incubator's MSB Registration service
All registered MSBs must possess a formal AML/CFT compliance program. This includes:
ā” Need help setting up your compliance program? Learn about AML Incubator's CAMLO/MLRO Services
MSBs are subject to transaction reporting and recordkeeping obligations, including:
In addition, MSBs must retain client identification records, transaction documentation, and internal assessments for at least five years.
ā” Need more information about LVCTRs? Review this blog: What is a Large Virtual Currency Transaction Report (LVCTR)?
FINTRAC regularly reviews MSBs to evaluate compliance effectiveness. These reviews examine your AML program, internal controls, staff training, and reporting obligations.
ā” Need assistance for your own review? Check out our Effectiveness Review service
Banks perceive MSBsāespecially crypto-related onesāas high-risk. Many MSBs struggle to open accounts or experience sudden account closures without notice.
MSBs that operate in multiple countries must comply with each jurisdictionās regulatory framework. This creates complex compliance burdens and adds overhead to expansion plans.
Failure to implement and follow a proper compliance program can result in:
The existence of MSBs should not be discouraged due to regulatory pressure. The growth of FinTech depends on them. Most crypto exchanges, DeFi onramps/offramps, and digital neobanks operate as MSBs. For this reason, it's crucial to start with a robust compliance framework.
ā” For a startup, outsourcing compliance makes senseāboth operationally and financially. AML Incubator helps MSBs from Day 1 without requiring you to build an in-house team.
Read more: The Success from Day One: 4 Benefits of Outsourcing Compliance for Startups
Building your own internal compliance teams can be expensive and time-consuming. AML Incubator provides the agility and flexibility needed to ensure your MSB remains compliant without the burden. Our services include:
ā” Read more:
Regulatory Remediation Services
The Money Services Business classification is a vital part of the modern economy. However, these businesses face strict and evolving compliance requirements. Whether you're launching a currency exchange outlet, a cryptocurrency trading platform, or anything in between, understanding the MSB regulatory structure is crucial to staying compliantāand staying in business.
From your initial MSB registration to ongoing audits and compliance updates, AML Incubator is here to help. We are your trusted partner in regulatory excellence, allowing you to focus on growing your business with confidence.
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