Am I a Money Services Business (MSB)? A Plain-English Guide for Canadian FinTechs
Disclaimer: This information is for educational purposes only and does not constitute legal advice. You must consult with a qualified lawyer to determine your specific obligations.
Figuring this out isn't just paperwork. If your FinTech is legally considered an MSB, you have significant compliance obligations to Canada's financial regulator, FINTRAC (Financial Transactions and Reports Analysis Centre of Canada). Getting it wrong can result in serious penalties, including monetary fines and even criminal charges. This guide will help you answer that crucial first question in plain English.
What is an MSB?
In Canada, a Money Services Business (or "Money-Services Business" in some government documents) is not defined by its technology, its app, or its business name. It is defined entirely by the activities it performs.
These activities are set out in Canada's primary anti-money laundering (AML) and anti-terrorist financing (ATF) law, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
The entire purpose of regulating MSBs is to prevent financial crime. By registering and reporting, MSBs act as a crucial line of defense, helping FINTRAC detect and deter the flow of illicit funds.
A Critical Distinction: MSB vs. Foreign MSB (FMSB)
Before looking at the activities, you must know where you are operating.
You are an MSB if: You have a physical place of business in Canada (an office, an agent, etc.) and you perform one of the activities below.
You are a Foreign MSB (FMSB) if: You do not have a physical place of business in Canada, but you direct your services to clients in Canada and perform one of the activities below.
FINTRAC considers you to be "directing" services to Canadians if you, for example:
Market or advertise your services to people in Canada.
Operate a ".ca" domain name.
Offer your platform or app in Canadian dollars (CAD).
Are listed in a Canadian business directory.
If you are an FMSB, you have the same FINTRAC registration and compliance obligations as a Canadian-based MSB.
The Litmus Test: Do You Perform These Activities?
Your FinTech is likely an MSB or FMSB if you provide at least one of the following services to the public:
Foreign Exchange Dealing:
What it is: Exchanging one type of currency for another (e.g., CAD to USD, or EUR to JPY).
FinTech Example: Your app allows users to hold multi-currency balances and convert between them, or you offer international remittance services that involve a currency exchange.
Remitting or Transmitting Funds:
What it is: Sending money from one person or entity to another. This is the classic "money transfer" service.
FinTech Example (Updated): This category is broad and now clearly includes many Payment Service Providers (PSPs). You are likely in this category if:
Your platform allows a user to send money to a friend (P2P transfer).
You provide invoice payment services, acting as an intermediary for users to pay their bills (e.g., utilities, payroll, rent).
You provide payment services for goods and services, where you act as an intermediary between a customer and a merchant who has an agreement with you to receive payments.
Issuing or Redeeming Money Orders, Traveller's Cheques, etc.:
What it is: While less common for modern FinTechs, this involves selling or cashing "negotiable instruments." This category is being increasingly interpreted to cover new forms of stored-value products.
FinTech Example: Your service involves issuing pre-paid cards or digital vouchers (that are not for a specific merchant) which can be redeemed for cash or goods.
Dealing in Virtual Currency (VC):
What it is: This is a critical category for FinTech. It includes both exchanging virtual currencies and transferring them.
FinTech Example:
You run a crypto exchange (or Crypto-Asset Trading Platform) where users can buy or sell Bitcoin, Ether, or other cryptocurrencies.
You provide a custodial wallet service where you hold the private keys for your clients.
You allow users to transfer crypto from your platform to an external wallet (or vice-versa).
Crowdfunding Platform Services:
What it is: You operate a platform used to raise funds or virtual currency from the public for a person or business. This applies to both donation-based and investment-based models.
FinTech Example: Your website or app hosts fundraising campaigns for startups, charities, or creative projects, and you handle the flow of money (or crypto) from donors/investors to the campaign creator.
Common FinTech Misconceptions
This is where many startups get into trouble.
"But I just provide the software (SaaS)!" If you simply license your software to a bank (which is already regulated) and you never touch, control, or direct the funds, you might not be an MSB. However, if your platform's users sign up with you and you initiate the transactions, even if a bank is processing it in the background, you are likely the one providing the service and are subject to the rules.
"But I use a third-party payment processor!" This no longer provides an exemption. FINTRAC's latest guidance clarifies that being a Payment Service Provider (PSP) who acts as an intermediary makes you an MSB (see Activity 2). If your platform is the one the user interacts with, and you direct a processor (like Stripe) to move funds from a payer to a payee as part of your service, you are likely the one performing the fund remittance and are subject to the rules.
"But I'm just an agent for a bank!" This is a specific legal relationship. If you have a formal, written "agent" agreement with a bank or another MSB, your compliance duties may be different. However, simply having a bank account does not make you an agent. This distinction is complex and requires a legal review of your contracts.
What If I Am an MSB?
If your business performs any of the activities listed above, the next steps are clear:
You Must Register with FINTRAC: This is not optional. You must register before you begin offering services.
You Must Have a Full AML Compliance Program: This is the heaviest lift. Your program must be written, customized to your business's specific risks, and must include:
Appointing a Compliance Officer.
Written policies and procedures.
A risk assessment of your business.
A training program for all staff.
A plan for a regular two-year effectiveness review (audit).
You Must Perform "Know Your Client" (KYC): You will be legally required to verify the identity of your clients.
You Must Keep Records and Report: You will need to keep specific records of transactions and report certain types to FINTRAC (like suspicious transactions or large virtual currency transactions).
Next Steps: Don't Guess on Compliance
As a FinTech founder, "Am I an MSB?" is one of the most important questions you will answer. The rules are complex, and the answer depends entirely on the specific facts of your business model.
Figuring this out after you launch, or after FINTRAC contacts you, is the wrong time. The cost of non-compliance is always higher than the cost of compliance.
Our firm has experience in helping Canadian FinTechs navigate these regulations. We can review your business model, provide a formal legal opinion on your status, and help you build a practical, effective compliance program from day one. Contact us for a consultation.
