FINTRAC Policy Interpretations

Money services business / Foreign money services business

Foreign MSB – Representative for service considerations

Question:

We acted as a foreign money services business’ (FMSB) representative for service in connection with the entity’s registration as a foreign MSB, but no longer wish to do so on an ongoing basis. Are there any third party companies, agencies, firms, etc. that accept this mandate (for a fee)?

Answer:

Subparagraphs 11.12(1)(b)(i) and (c)(i) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), require that an applicant that is a foreign MSB, provide the name and address for service of an individual who resides in Canada and who is authorized to accept, on behalf of the person or the entity, as applicable, notices that are served or caused to be served by the Centre under this Act.

If there are any changes to the information provided by the reporting entity, such as a change in their representative for service in Canada, it is the reporting entity that must inform FINTRAC within 30 days. Information on how they may do so is available on our website.

FINTRAC does not endorse any product, service, or service provider and, therefore, is unable to provide a list of third party companies, agencies, or firms that are willing to act as a representative for service in Canada.

Date answered: 2020-10-15

Answer updated on: 2021-08-20

PI Number: PI-11059

Activity Sector(s): Money services businesses

Obligation(s): Money services business / Foreign money services business

Act: s. 11.12

Reward miles – dealing in virtual currency

Question:

Would a business receiving points such as airline miles in exchange for virtual currencies be considered to be dealing in virtual currency?

Answer:

Persons or entities are “dealing in virtual currency (VC)” when they engage in the business of providing VC exchange or value transfer services. Where exchange services include exchanging funds for VC, VC for funds, or one type of VC for another type of VC. And where transfer services include both the transfer of virtual currency at the request of a client, and the receipt of virtual currency on behalf of a client.

Virtual currency means:

  • (a) a digital representation of value that can be used for payment or investment purposes, that is not a fiat currency and that can be readily exchanged for funds or for another virtual currency that can be readily exchanged for funds; or
  • (b) a private key of a cryptographic system that enables a person or entity to have access to a digital representation of value referred to in paragraph (a). 

In addition, funds means:

  • (a) Cash and other fiat currencies, and securities, negotiable instruments or other financial instruments that indicate a title or right to or interest in them; or
  • (b) a private key of a cryptographic system that enables a person or entity to have access to a fiat currency other than cash.

             For greater certainty, it does not include virtual currency.

 

Therefore, exchanging points such as airline miles for virtual currency would not be considered “dealing in virtual currency” as the airline miles do not meet the definition of “funds” or “virtual currency” as outlined above. The person or entity would not be subject to the PCMLTFA and associated regulations for this activity. However, should the person or entity also offer the ability to exchange one VC for another, funds for VC, or vice versa then they would be engaged in VC exchange activities and would be required to register with us.

Date answered: 2020-06-15

Answer updated on: 2021-08-20

PI Number: PI-10644

Activity Sector(s): Money services businesses

Obligation(s): Money services business / Foreign money services business

Regulations: 1(2)

Act: 5

MSB Registration – location information and risk assessment

Question:

An MSB has an administrative office and another address for service. The administrative office is not open to the public, the address is not included in any of the MSB’s materials, and no customers are permitted at this office address for any reason. The MSB has a different address that is used to receive mail and that is included in all published materials.

What address information needs to be provided in the MSB’s registration form?

Does the MSB need to consider the administrative location in its risk assessment?

Answer:

Pursuant to Schedule 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations, which prescribes the information to be included in an application for registration, item 5 of Part A - Identifying Information with Respect to Applicant - requires an applicant to provide the address of their place of business. In this field the applicant should provide the address of their head office or the main address of their business. In Part B, item 4 requests the mailing address of the place of business (if different from address in item 5 of Part A).

Therefore, the MSB should provide the address of their head office in Part A, which will be displayed on FINTRAC’s MSB registry, and their mailing address in Part B. Please note that an MSB is required to provide this information and FINTRAC is obligated to display the information from Part A, along with any agent, mandatary or branch information from Part C, on its registry.

Moving to your second question, as you know, subsection 9.6(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), requires reporting entities (REs) to develop and implement a compliance program. This program shall include the development and application of policies and procedures for the person or entity to assess, in the course of their activities, the risk of a money laundering offence (ML) or a terrorist activity financing offence (TF). Further, pursuant to subsection 156(1)(c) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), REs must assess and document the risk referred to in subsection 9.6(2) of the Act, taking into consideration:

  • (ii) their products, services and delivery channels,
  • (ii) their products and delivery channels,
  • (iii) the geographic location of their activities,
  • (iv) in the case of an entity that is referred to in any of paragraphs 5(a) to (g) of the Act, any risk resulting from the activities of an entity that is affiliated with it and that either is referred to in any of those paragraphs or carries out activities outside Canada that are similar to those of a person or entity referred to in any of those paragraphs, and
  • (v) any other relevant factor;

The MSB should, therefore, include within its risk assessment the geographic locations of its activities, which can include administrative office locations, where employees are performing activities and tasks related to compliance with the obligations under the PCMLTFA and its associated Regulations (reporting transactions, keeping records, etc.), as there may be aspects to this location that pose an ML/TF risk.

Date answered: 2020-06-04

Answer updated on: 2021-08-20

PI Number: PI-10646

Activity Sector(s): Money services businesses

Obligation(s): Money services business / Foreign money services business

Regulations: Schedule 1 of 4.The Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations

Act: 5(h)

Ransomware

Question:

If we help people pay ransomware in virtual currency are we an MSB?

Answer:

Pursuant to paragraph 5(h) of the PCMLTFA, a person or entity is a money services businesses (MSB), and required to register with FINTRAC, if engaged in the business of providing any of the following services:

  • Foreign exchange dealing (conducting transactions where one fiat currency is exchanged for another fiat currency);
  • Remitting or transmitting funds by any means or through any person, entity or electronic funds transfer network;
  • Issuing or redeeming money orders, traveller's cheques or other similar negotiable instruments (except for cheques payable to a named person or entity); or
  • Dealing in virtual currency, which includes both virtual currency exchange and value transfer services.

Entities dealing in virtual currency include those that are offering virtual currency exchange and virtual currency transfer services, where :

  • Virtual currency exchange services include exchanging:
    • funds for virtual currency,
    • virtual currency for funds or,
    • virtual currency for another virtual currency.
  • Virtual currency transfer services include:
    • transferring virtual currency at the request of a client or,
    • receiving a transfer of virtual currency for remittance to a beneficiary.

Based on the information you've provided about your business operations, and namely that a client can approach your business to request assistance with ransomware payments, it appears that your business is engaged in virtual currency transfer services.

As an MSB, your business will have legal obligations under Canada’s PCMLTFA. This includes registering with us, reporting to us, keeping records, identifying clients, and implementing a compliance program. The current obligations for MSBs are explained in greater detail on the MSB sector page of our website and will provide valuable information.

You will note, in particular the obligation to report suspicious transactions. While the act of sending the VC for the purpose of releasing the encrypted files may not be counter to the obligations of the PCMLTFA and its associated Regulations, you may suspect that the transaction is related to money laundering or the financing of terrorist activity because of the destination of the transaction, and therefore be obligated to submit a suspicious transaction report (STR). In addition, you may wish to seek legal guidance with respect to participating in these transactions.   

Date answered: 2020-03-18

Answer updated on: 2021-08-20

PI Number: PI-10542

Activity Sector(s): Money services businesses

Obligation(s): Money services business / Foreign money services business

Act: 5(h), 7

Definition of a money services business and a payment service provider

Question:

What is the difference between a money services business (MSB) and a payment service provider, and what the definition is for each?

Answer:

FINTRAC’s mandate includes ensuring the compliance of reporting entity sectors with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated regulations. The reporting entity sectors are identified in section 5 of the PCMLTFA and include accountants, British Columbia notaries, casinos, dealers in precious metals and stones, life insurance companies, life insurance brokers and agents, real estate agents or brokers, real estate developers, securities dealers, financial entities, and MSBs/FMSBs.

Payment service providers are not defined in the PCMLTFA, nor its associated Regulations. Therefore, a payment service provider is only subject to the obligations and requirements outlined in the PCMLTFA and its associated Regulations when it meets the definition of one of the reporting entity sectors such as an MSB, FMSB, or possibly a financial entity.

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) specifies that an MSB “means a person or entity referred to in paragraph 5(h) of the Act.” Paragraph 5(h) of the PCMLTFA thus defines MSBs as “persons and entities that have a place of business in Canada and that are engaged in the business of providing at least one of the following services:

  • (i) foreign exchange dealing,
  • (ii) remitting funds or transmitting funds by any means or through any person, entity or electronic funds transfer network,
  • (iii) issuing or redeeming money orders, traveller’s cheques or other similar negotiable instruments except for cheques payable to a named person or entity,
  • (iv) dealing in virtual currencies, or
  • (v) any prescribed service.”

With that being said, FINTRAC has taken the position that persons or entities engaged in the business of any of the following, that involve the “remitting or transmitting of funds by any means or through any person, entity or electronic funds transfer network”, are not considered to be MSBs:

  • Utility payments,
  • Payroll and commission services,
  • Mortgage and rent payment services, and
  • Certain tuition payment services.

The reason for this is because they are not engaged in the business of remitting or transmitting funds for the sake of the service. The transfer of funds is simply a corollary of their actual service, which is payment processing.

Similarly, depending on the business model provided by a person or entity, FINTRAC has taken the position that those engaged in the business of providing settlements directly to merchants on behalf of the merchant's customers, for the purchase of goods and services, are not considered to be MSBs as the transfer of funds is performed only as a result of the merchant services offered.

It will always be a question of fact to determine whether a person or entity is engaged as an MSB in Canada.

Date answered: 2016-11-29

Answer updated on: 2021-08-20

PI Number: PI-7670

Activity Sector(s): Money services businesses

Obligation(s): Money services business / Foreign money services business

Guidance: FIN-1

Regulations: 1(2)

Act: 5(h)

Remitting and Transmitting - Covered

Question:

We would like to establish an online business of transferring funds from one individual or organization to another and all transactions are taking place online. Individuals or organizations send money using our platform, and all transactions will be within Canada.

Do we need to be registered as an MSB with FINTRAC?

Answer:

Money services businesses have the obligation to register with FINTRAC. You are an MSB if you are 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).

Based on the information you have provided, it appears that your entity is, at this time, engaged as an MSB in Canada as per our Act and associated regulations.

Given the fact you are engaged in remitting and transmitting funds, but are only doing so within Canada, you do not need to report these transactions as EFTs. However, as an MSB in Canada, you have legal obligations under Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). This includes registering your business with FINTRAC, amongst a number of other obligations. Additionally, you may have record keeping obligations under 36(c.1) and (c.2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) for these transactions.

All of your obligations and responsibilities are described in greater detail on our Web site. It is important that you understand these obligations and meet them to be in full compliance with this law.

Date answered: 2013-12-13

Answer updated on: 2021-08-20

PI Number: PI-5661

Activity Sector(s): Money services businesses

Obligation(s): Money services business / Foreign money services business

Regulations: 36(c.1), 36(c.2)

Act: 5(h)

Accounts for MSB

Question:

Can an MSB have accounts and do we recognize that they are called accounts on the LCTR form?

Answer:

It is clear in the Regulations that there is no concept of an "account" for the MSB sector. The MSB sector is not recognized as having accounts. The prescribed obligations apply only to financial entities, securities dealers and casinos.

Date answered: 2013-04-10

Answer updated on: 2021-08-20

PI Number: PI-5531

Activity Sector(s): Money services businesses

Obligation(s): Money services business / Foreign money services business

Securities dealer vs. MSB

Question:

The question is whether the MSB definition would apply to a securities dealer that is also conducting foreign exchange transactions outside of the scope of securities related purchases - are they also required to be registered as an MSB?

Answer:

Should a securities dealer provide money services business (MSB) activities, such as foreign exchange dealing, outside of their securities dealer activities, the securities dealer would be required to register as an MSB. Upon registration as an MSB, the registrant would indicate that their business is also another type of reporting entity (i.e., a securities dealer). As an MSB and a securities dealer, the entity would be subject to all applicable sections of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated regulations.

Date answered: 2012-05-02

Answer updated on: 2021-08-20

PI Number: PI-5404

Activity Sector(s): Money services businesses, Securities dealers

Obligation(s): Money services business / Foreign money services business

Act: 5(g), 5(h)

Date Modified: