What is a Money Services Business? And How is it Regulated?

 

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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:

• Trading in foreign exchange
• Money remitting (domestic and international money transferring)
• Issuing and/or cashing money orders, traveler's cheques or other instruments for value
• Dealing in virtual currencies (cryptocurrencies, crypto traders, crypto ATMs and Over the Counter (OTC) cryptocurrency desks)
• Crowdfunding operations (within specific situations)

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).

How are MSBs Regulated?

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.

 

1. Registration Requirements

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.

➡ For info on Canadian MSB registration, see AML Incubator's MSB Registration service

 

2. AML/CFT Compliance Programs

All registered MSBs must possess a formal AML/CFT compliance program. This includes:

• Appointing a CAMLO (Chief Anti-Money Laundering Officer)
• Drafting AML policies and procedures
• Conducting risk assessments
• Providing ongoing training to staff
• Performing periodic effectiveness reviews

➡ Need help setting up your compliance program? Learn about AML Incubator's CAMLO/MLRO Services

 

3. Reporting and Recordkeeping Obligations

MSBs are subject to transaction reporting and recordkeeping obligations, including:

• Large Cash Transaction Reports (LCTRs)
• Large Virtual Currency Transaction Reports (LVCTRs)
• Suspicious Transaction Reports (STRs)
• Terrorist Property Reports (TPRs)

In addition, MSBs must retain client identification records, transaction documentation, and internal assessments for at least five years.

➡ Need more information about LVCTRs? Review this blog: What is a Large Virtual Currency Transaction Report (LVCTR)?

 

4. Review for Compliance Effectiveness and Oversight

FINTRAC regularly reviews MSBs to evaluate compliance effectiveness. These reviews examine your AML program, internal controls, staff training, and reporting obligations.

➡ Need assistance for your own review? Check out our Effectiveness Review service

MSB Pain Points

1. Regulatory Review and De-Risking

Banks perceive MSBs—especially crypto-related ones—as high-risk. Many MSBs struggle to open accounts or experience sudden account closures without notice.

 

2. Cross-Jurisdictional Licensing Requirements

MSBs that operate in multiple countries must comply with each jurisdiction’s regulatory framework. This creates complex compliance burdens and adds overhead to expansion plans.

 

3. Enforcement Risks and Reputational Exposure

Failure to implement and follow a proper compliance program can result in:

• Fines amounting to millions
• Revocation of licenses
• Damage to brand reputation
• Barriers to future growth or acquisition

Why FinTech and Crypto MSBs Are Essential

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.

➡ For a startup, outsourcing compliance makes sense—both operationally and financially. AML Incubator helps MSBs from Day 1 without requiring you to build an in-house team.

 

Outsourcing Compliance: A Smarter Path Forward

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:

• CAMLO-as-a-Service
• Creation of AML policies
• Enhanced Due Diligence (EDD) and transaction monitoring
• Regulatory audit support and remediation services

➡ Read more:

Regulatory Remediation Services

EDD Services

Conclusion

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 compliant—and 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.

Other Blogs You May Be Interested In

• What to Do When Your MSB License Expires
• Should You Buy a Shelf MSB?
• Navigating Compliance Challenges in FinTech
• Why Companies Outsource Compliance
• 5 Components of an Effective Compliance Program in Canada

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