Notes from Canadian local Writer and MSB license expert
Please take a moment to review the “Challenges and Common Mistakes” section, especially the part about RPAA - it’s highly relevant and worth your attention.
Also, we have the best offer for an MSB license. Really the best. Just contact us for a quick call, and I’m confident you’ll find it impossible to choose anyone else!
Canada is known for its stable economy, clear regulations, and endless opportunities for business to thrive. But, as with any great opportunity, there’s a catch.
Businesses must have an MSB license to work legally both in the country and outside of Canada.
In this article, we’ll explain what an MSB license is, which businesses need it, and how to obtain one. We’ll also share the most common mistakes applicants make, so you can avoid them and save time.
What is an MSB License in Canada?
An MSB (Money Services Business) is any company that offers financial services, like money transfers, payment systems, fundraising and more. An MSB license provides many opportunities for its holders. For example, companies are free to conduct transactions in local or foreign currency, with individuals and legal entities, regardless of clients’ location.
There are two types of MSBs:
- Canadian money services businesses (MSB): for local (Canadian) companies providing financial services worldwide;
- Foreign money services businesses (FMSB): for foreign companies providing financial services worldwide.
The most common jurisdiction for FMSB to incorporate is the UK, but trends tend to change over time.
MSB license holders are recommended to restrict countries prohibited, banned or sanctioned by the Canadian government. As for the FMSB license owners, they must follow the same rules, and at the same time it’s recommended to follow a list of restricted countries in the jurisdiction of incorporation.
Advantages of MSB License
By mid-2024, the MSB sector in the Canadian economy got a 25% increase. That means a license is an attractive opportunity for local and foreign businesses.
But there are even more advantages:
Credibility and Legal Compliance
A company registration in Canada can enhance credibility with local customers and partners. Moreover, Canada holds an excellent reputation in the international fintech market as a trusted jurisdiction for issuing licenses
Access to Banking Services
MSB license is the requirement to get a bank account for your business. A licensed business, as they meet regulatory standards, has the opportunity to get banking services in local banks and financial institutions. So it makes the process of opening bank accounts for your business possible and easier.
It also gives possibility to operate as an Electronic Money Institution (EMI) providing Swift and Sepa accounts for B2B clients
More Affordable Compared to Other Licenses
Obtaining an MSB license is cheaper than other national licenses. First year fee starts from $10,000 for both MSBs and FMSBs and can go up to $40,000, depending on the chosen agent. Renewal fees are more affordable, starting from $8,500 for both license types.
So, by selecting the right agent, applicants can avoid unnecessarily high costs.
Tax Treaty
Because of Canada’s federal structure and different tax rates in each province, businesses can find more favorable tax conditions.
Moreover, businesses can reinvest profits and do not pay additional tax.
Who Needs an MSB License in Canada?
As mentioned above, an MSB is essential for fintech, but let’s take a closer look at who needs this license, how it’s utilized, and why it’s so important.
A license is required for businesses operating in the following sectors and providing related services:
- Payment Gateways;
- Any platforms/businesses planning to process transactions directly, without intermediaries. These are usually large businesses planning to reduce payment processing costs and particularly in high-risk industries such as gambling, forex, adult entertainment, and similar sectors.
- Financial startups and fintech companies;
- Electronic money institutions (EMIs);
- Cryptocurrency exchanges and wallets;
- International money transfer services.
All such companies would benefit from having an MSB license. Because it covers all services related to cryptocurrency, transfers, currency exchange, payment processing, and client asset management.
To see the real examples, just simply look at how companies use MSB licenses. All these companies hold MSB license: Knightsbridge Foreign Exchange, operating in currency exchange; Western Union Canada, specializing in money transfers; Bitbuy, providing cryptocurrency services; Payza, offering payment processing; and Wealthsimple Cash, issuing prepaid cards.
How to get an MSB License
It’s important to note that MSBs and FMSBs are not a part of a country’s banking system. They are regulated and licensed by the Financial Transactions and Reports Analysis and Analysis Centre (FINTRAC).
Let’s explore the process of obtaining a license step by step.
Company Registration
Registering a business is a first step toward obtaining a license. This process involves establishing a business as a legal entity with the relevant provincial or federal authorities. Once registered, a company will receive a Business Number (BN) from the Canada Revenue Agency (CRA). This number is essential for tax purposes and official interactions with the government.
It usually takes up to 1 week after the preliminary name check.
It is highly recommended to register a company in Alberta or British Columbia for the most advantageous tax treatment.
FINTRAC Registration
In the next step, businesses must register their MSB/FMSB with FINTRAC. Which starts by completing a preliminary form with basic information about company, address and intended activity.
It will follow with a quick call from the compliance officer clarifying details. After the call you will get access to the FINTRAC portal to continue with the main part of the application.
The process would take up to 2 weeks.
Compliance Program
MSBs are required to implement a compliance program under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
The compliance policy should cover, at a minimum, the following requirements:
- Compliance officer: This includes the appointment of a compliance officer responsible for ensuring adherence to Anti-Money Laundering (AML) regulations, conducting risk assessment, and maintaining a training program;
- Know Your Customer (KYC): This involves verifying a client's identity, reviewing their financial activity, keeping records, and reporting transactions as required by law;
- Travel Rule: Ensuring that information about senders and receivers of money or virtual currency is collected, verified, and securely transmitted. This rule specifically applies to transactions over $1,000;
- Ministerial Directive: A special government order requiring closer monitoring of funds originating from high-risk countries or individuals to prevent illegal activities.
Documents preparation and submission
The core documentation required for an MSB application includes:
- Registration documents of the company (Proof of the company's legal status)
- Identification documents of founders and staff members
- Ownership and management details
- Description of MSB services
- Business plan
- Bank account statements
- Information about the compliance officer and their experience
- Reporting and record-keeping readiness
- Corporate organizational structure
- List and description of provided services
- Contact details
The document preparation process usually takes 4 to 8 weeks, depending on how quickly the applicant can gather all the necessary materials.
Please note, that due to the recent security breach at FINTRAC, the registration process takes approximately 1-2 months after submitting documents, compared to the previously shorter timelines. The delay was caused by a hacker attack in early 2024, resulting in the temporary closure of FINTRAC's portal and a suspension of all processes. Operations fully resumed in November, and FINTRAC has been functioning smoothly since then.
Tax Implications for MSBs in Canada
Licensed businesses must pay both federal and provincial taxes. The latter vary depending on the province, income level, and type of income. Let’s find out what is what.
In 2024, Federal Corporate Tax are divided into two types:
- 9% for small businesses on first $500,000 of active income for qualifying Canadian-controlled private corporations (CCPC);
- 15% for general corporations.
As for Provincial Corporate Tax, its rates by province:
- Yukon: 2.5% in Yukon (on small business income);
- Alberta: 8%
- Ontario: 11.5%
- British Columbia: 12%
- Nova Scotia and Prince Edward Island: 16% (on general income).
Source: Government of Canada
Let’s calculate how much a business with an MSB license in Alberta will pay with $1,000,000 taxable income:
- Federal tax: $1,000,000 x 15% = $150,000
- Alberta provincial tax: $1,000,000 x 8% = $80,000.
That means that total corporate tax will be $230,000, while effective tax rate will be 23%.
Challenges and Common Mistakes
Getting a Money Services Business (MSB) license isn’t always straightforward. Here are the main challenges applicants often face during the application process.
Registration Under the Retail Payment Activities Act (RPAA)
New MSB license holders must also register with the Bank of Canada under the Retail Payment Activities Act (RPAA) if their business activities meet certain criteria.
Activities Requiring RPAA Registration:
- Foreign Exchange: Requires RPAA registration.
- Money Transmitter: Requires RPAA registration if fiat currency is involved.
- Virtual Currency: Does not require RPAA;
- Cashing Cheques, Money Orders, etc.: Does not require RPAA.
- Crowdfunding: Requires an additional BCSC license.
- Payment Service Providers (PSPs): Requires RPAA registration.
- Armored Car Services for Cash and Valuables: Does not require RPAA.
The registration must be completed by September 2025. Non-compliance can lead to de-banking and heavy fines. The Central Bank of Canada has also developed a questionnaire to help determine if your business falls under the PSP definition. However, remember that navigating this regulatory framework can be tricky, so it's important to consult with experts to ensure you’re fully compliant and avoid any costly mistakes.
Extensive Paperwork
Applicants may be overwhelmed by the volume of detailed documentation that must be provided. Business plans, financial statements, compliance policies, information on owners, directors, key individuals and staff members, proof of financial stability – the list of documents seems to be endless.
This is where most common mistakes occur.
Many applicants try to handle the process on their own but often get lost in the details. The regulator doesn’t tolerate errors, and even a small mistake can lead to rejection.
That’s why most people choose to work with agents. Agents simplify the process and improve your chances of approval.
Conclusion
Imagine building a business in a sustainable environment both economically and politically, with opportunities to find favorable tax conditions, and gain support from most banks. An MSB license can make this dream come a reality.
Its rules and regulations can seem intimidating, but following them is mandatory. If all paperwork feels like too much, a professional may save time and prevent unnecessary stress.
At MGL, we know the process from A to Z, and guide applicants smoothly through the process, minimizing the risk of refusal and saving time. With our expertise, you can secure your license in just 2–4 months.
Want to enter the market quickly and build an excellent reputation from day one? Book a free consultation and learn more about an MSB license in Canada.
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