Are you a foreign money services business?

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Are you a foreign money services business?

Are you a foreign money services business?

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July 15, 2021

On July 10, 2019, amendments were made to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and regulations to clarify and strengthen the obligations of Foreign Money Services Businesses (FMSBs). The regulatory amendments require businesses that conduct money services business (MSB) activities directed towards Canadians from outside of Canada to classify themselves as FMSBs and comply with Canadian anti-money laundering requirements. Under the new amendments, which came into effect June 1, 2021, FMSBs will have the same obligations as ‎domestic MSBs when they provide one of the listed services directed at individuals located in Canada.

What is a money services business?

A business or enterprise is considered an MSB in Canada if they offer any of the following services:

Foreign exchange dealing
Remitting or transmitting funds
Issuing or redeeming money order or similar negotiable instruments
Dealing in virtual currency

What is a foreign money services business?

A business or enterprise is considered an FMSB if it meets all of the following criteria:

The business provides at least one money services business (MSB) service
The business does not have a place of business in Canada
The business directs its MSB services at persons or entities in Canada
The business provides these services to clients in Canada

A business is considered to be directing services at persons or entities in Canada if at least one of the following applies:

The business’s marketing or advertising is directed at persons or entities located in Canada
The business operates a “.ca” domain name
The business is listed in a Canadian business directory

Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) defines directing services to mean the services offered take into consideration a Canadian audience. For example, marketing and advertising materials that are distributed, with the intent to acquire business from individuals within Canada. The term “direct” seems quite open-ended as to how it will be interpreted; at a minimum, it sets the requirements above simply having a Canadian bank account, which was previously sufficient to give FINTRAC jurisdiction over non-residential FMSBs. ‎

Summary of requirements for FMSBs

In response to these new amendments, FINTRAC has issued guidance for FMSBs, which came into effect the same day as the new regulation (June 1, 2021).

Requirement under the PCMLTFA and associated regulations	Requirements
Compliance program	Foreign money services businesses must implement a compliance program. Compliance programs under PCMLTFA are the basis for all regulatory requirements for FMSBs.
Know your client	Foreign money services businesses are required to verify the identity of persons and entities for certain transactions and activities, and carry out additional customer due diligence activities, as outlined below: When to verify the identity of persons and entities Foreign money services businesses must verify the identity of persons and entities for certain transactions and activities. Method to verify the identity of persons and entities Foreign money services businesses are required to verify the identity of persons and entities using the methods prescribed by the PCMLTFA and associated regulations. Business relationship requirements Foreign money services businesses enter into a business relationship with a client the second time they are required to verify the identity of that client or when they enter into a service agreement with a client that is an entity in Canada to provide an FMSB service. Ongoing monitoring requirements Foreign money services businesses create an ongoing monitoring requirement when they enter into a business relationship with a client. Beneficial ownership requirements Foreign money services businesses are required to obtain and take reasonable measures to confirm the accuracy of beneficial ownership information for entities. Third party determination requirements Foreign money services businesses have third party determination requirements when they are required to submit certain reports and keep certain records. Politically exposed persons (PEP) and heads of international organizations (HIO) requirements Foreign money services businesses are required to take reasonable measures to make PEP and HIO determinations for certain activities or transactions. If a foreign money services business determines that a person is a PEP or an HIO then they have additional related requirements.
Reporting	Foreign money services businesses must submit the following reports to FINTRAC: Suspicious transaction reports Terrorist property reports Large cash transaction reports Large virtual currency transaction reports Electronic funds transfer reports 24-hour rule Foreign money services businesses have 24-hour rule requirements for large cash transaction reports, large virtual currency transaction reports, and incoming or outgoing electronic funds transfer reports.
Record keeping	Foreign money services businesses are required to keep certain records, including records related to transactions and client identification.
Travel rule	Foreign money services businesses have travel rule requirements related to electronic funds transfers and virtual currency transfers.
Ministerial directives	Ministerial directive requirements apply to all reporting entity sectors.

Penalties for non-compliance

FINTRAC has the legislative authority to issue administrative monetary penalties (AMPs) to businesses that are found to be non-compliant with the PCMLTFA and associated regulations.

Conclusion

These new amendments impose increased obligations for foreign entities carrying on money services businesses that operate or target individuals within Canada. Given the scope of these changes, newly-regulated entities will need to implement a considerable overhaul of their compliance policies and procedures. For the time being, FINTRAC will be exercising flexibility in assessing and enforcing compliance with certain reporting responsibilities related to the amended Regulations, but nevertheless, FMSBs need to quickly reorient their compliance programs to meet their new PCMLTFA obligations.