Canadian MSBs are gaining popularity. Emerging fintech businesses exploring the sector are keen to understand MSB options. This article delves into the advantages and limitations, providing examples of companies where MSBs are a fitting choice.

The broader range of services

MSBs offer more services, including crypto activities restricted within EEA-UK EMI/PI licenses and crowdfunding.

Canadian MSBs must fulfil specific obligations mandated by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). They can offer one or more of the following services to the public:

  1. Foreign exchange dealing.
  2. Remitting or transmitting funds.
  3. Issuing or redeeming money orders or similar negotiable instruments.
  4. Dealing with virtual currency (custody of crypto funds requires separate permission from the Securities Commission).
  5. Crowdfunding platform services.
  6. Payment services.

Streamlined MSB Registration Process with Reduced Time and Formalities

MSB excels in its prompt licensing process, surpassing other jurisdictions, including EEA-UK. MSB document preparation usually takes less than a month, and applications are typically reviewed within one or two months. This rapid turnaround often appeals to fintech start-ups keen to go live quickly, particularly compared to the potentially lengthy process in EEA countries, which can extend up to 1.5 years.

The registration process involves several stages, with the applicant justifying eligibility to become an MSB. Unlike European regulators, who meticulously navigate the licensing process, leading to many companies not obtaining a license, the Canadian regulatory approach is less formal. It typically requires the applicant to meet the requirements outlined by FINTRAC, Canada’s financial intelligence unit, and anti-money laundering and anti-terrorist financing supervisor.

Less investments for initial capital and the management team

Initial capital requirements

Canadian MSBs do not have minimum capital requirements, providing opportunities for companies with smaller budgets to start their payment or fintech business without facing high barriers.

Less expenses for the management team

For an MSB license, you need at least one director and a compliance officer during the registration stage. While there are no residency requirements for both roles, the compliance officer should have experience in the Canadian MSB industry or relevant education.

In contrast, when submitting documents in an EEA country, the company must hire at least 2-3 local employees. Ireland’s regulator requires hiring at least nine local employees.

Optimal Fit for Varied Clientele and Geographic Requirements

Serving clients in other regions

Canadian MSBs can offer services within Canada, which is their registered location. Additionally, these companies can engage clients from other jurisdictions if the customers initiate contact, aligning with reverse solicitation. This happens when customers from different countries independently seek financial services without the financial institution actively trying to attract them.

MSBs face no restrictions in providing services to customers who naturally discover their website, app, or customers have been acquired through channels that do not trigger licensing obligations in jurisdictions where such clients reside. The Canadian regulatory environment is more lenient in dealing with clients outside Canada.

When deciding on a license jurisdiction, carefully assess your client portfolio and marketing strategy to meet your business requirements:

  • If your plan involves operating in the EEA and actively advertising services there, Canada may not be a suitable option, and you should consider one of the EEA countries.
  • On the contrary, Canada might be a more suitable choice if your strategy involves working with clients through partners or acquaintances.

Covering different industries

MSBs demonstrate versatility in catering to diverse client bases across various industries, extending their services even to high-risk clients. This includes industries such as pharmaceuticals, adult entertainment, and others categorised as high-risk by EEA regulators, facing challenges in obtaining licenses within the EEA-UK region. This flexibility allows them to navigate challenges in obtaining licenses within the EEA-UK region, providing financial services to clients perceived as high risk by traditional regulatory frameworks.

Launching Payment Infrastructure and Operations for MSB Companies

Regrettably, many companies registering MSB entities overlook the challenges of opening accounts for these businesses. After successful registration, owners often face significant hurdles in the account-opening process. We recommend exclusively contacting professional firms offering comprehensive services beyond mere registration. Our Canada-based team specialises in providing one-stop-shop services, addressing the entire spectrum of needs for MSB companies.

Launching payment infrastructure for Canadian MSBs presents unique challenges compared to their European counterparts. With a market size of approximately 40 million people, mainstream banks often hesitate to collaborate due to the straightforward registration process and passive regulatory stance. As a result, Canadian MSBs often partner with small local banks and credit unions.

Local financial institutions, however, are often inadequately automated and lack the developed API infrastructure customary for European fintech companies. Furthermore, the absence of direct access to SEPA (Single Euro Payments Area) and limited options for providers offering euro-denominated current accounts add complexity to the infrastructure development process. In light of these challenges, creating a truly expansive international payment service becomes intricate for MSBs.

To overcome these hurdles, we offer our clients the option of opening correspondent accounts in different jurisdictions to cover major markets and currencies. Canadian MSB registration is widely recognised as equivalent to a European EMI license. Therefore, well-prepared financial businesses from Canada can access global banking. Depending on a specific MSB’s needs, our team assists with client funds accounts in Canada, the U.S., Europe, the U.K., and Asia. Contact us to learn more about how we can assist you.

Regulatory Compliance

Fulfilling compliance obligations is crucial for running an MSB in Canada. Despite the more relaxed regulatory landscape compared to European jurisdictions, having a robust compliance program is vital. The cornerstone of every compliance program is a set of comprehensive policies that must satisfy Canada’s regulatory body and align with global best practices to gain acceptance from banking partners. Therefore, these documents must be professionally written and tailored to the specific services that an MSB provides.

A compliance officer develops and implements policies, ensuring adherence to FINTRAC’s regulatory requirements, including reporting. However, hiring a full-time, high-paying employee may not be the smartest investment for a growing company. Reach out to learn how clients can benefit from outsourced compliance services with highly experienced officers.

Examples: Businesses Excelling with the MSB Option

  1. Africa-based and Asia-based start-ups offering remittance services and multicurrency e-wallets.
  2. Payment service providers working with high-risk industries.
  3. Non-custodial crypto exchanges.
  4. Neobanks serving freelancers and digital nomads.
  5. Companies targeting Canadian clients that need access to local payment rails.

Key Advantages in Comparison to EEA-UK-Licensed Companies:

  1. Expanded Range of Services, including crypto activities restricted within EEA-UK licenses.
  2. Prompt License Acquisition in less time compared to various jurisdictions, including EEA-UK.
  3. Diverse Client Base Portfolio spanning industries, geographical locations and risk levels.
  4. Lower Initial Investments are required for initiation.

Are you looking to kickstart your fintech venture quickly? Reach out to us! The MSB company option might be the perfect fit for your fintech project. We offer a one-stop solution, covering everything from company registration to essential services like setting up bank accounts, building payment infrastructure and delivering Core Banking software. Contact our team, and let’s schedule a call to delve into your project.

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