- Published on 2024-05-22
- 15 minutes read
Did you know that Canada was one of the first countries in the world to establish national laws specifically to regulate the crypto industry? Ever since 2014, when digital currencies became widely used, Canada has remained a credible and innovative destination for businesses and investors seeking to securely run their crypto operations. Under the strict oversight of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), companies get to legally launch an exchange or develop a new token by obtaining the necessary licensing.
Rather than just a bureaucratic hurdle, this step is foundational when it comes to establishing long-term trust with your customers and partners in a market that is scrutinized by global regulators and constantly evolving. How to navigate in this diverse financial landscape? Here is your guide to what crypto licensing in Canada looks like, from the regulatory overview and types of licenses available to the legal requirements and a step-by-step application roadmap.
Overview of the Canadian Crypto Field
What do you know about the Canadian crypto landscape? It presents a highly structured environment where digital assets are primarily regulated as either securities or as a type of Money Service Business (MSB). As of today, crypto has been evolving quickly in Canada, characterized by high consumer awareness, dynamic innovation, and significant regulatory developments. Moreover, Canada is the birthplace of Ethereum and the first country to approve a Bitcoin Exchange-Traded Fund (ETF). This country is a true frontier in the field of crypto and stays one step ahead of implementing effective and clear regulation in this sector. Let’s take a closer look at Canada’s regulation of crypto assets.
First of all, all crypto activities in the country are overseen by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). This regulator requires all crypto exchanges and dealers to register as MSBs in order to implement strict security protocols. Those include Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) measures. Second, besides FINTRAC, the provincial regulators, coordinated by the Canadian Securities Administrators (CSA), treat crypto contracts as securities and require trading platforms to register as dealers. It implies that even well-established assets like Bitcoin, for instance, are subject to investor protection laws when traded on a platform holding the consumer’s funds.
Overall, this structured and clear regulation of cryptocurrency is exactly what drives Canada’s reputation as a trustworthy and mature market for digital finance today. What does it mean in practice? The core principle is to ensure consumer and investor protection, which is achieved by a business’s adherence to strict compliance requirements. Those, in particular, include the local presence obligations, company registration, risk management, and segregation of client assets. Therefore, before you launch your project in Canada, make sure to think of it as a regulated financial institution that must comply with the robust legal standards from day one.
What is the MSB License in Canada?
Now that you know more about what the crypto landscape looks like in Canada, it’s time to explore the licensing options that would allow you to launch and grow your business in this progressive market. The most commonly used cryptocurrency license is the Money Service Business, or MSB. What should you know about this type of Canadian crypto licensing?
MSB Regulation in Canada
Regulated by FINTRAC, MSB allows you to legally perform your crypto activities, including exchanges and trading, with the fewest regulatory barriers. Moreover, if you register your project under the Retail Payment Activities Act (RPAA) with the Bank of Canada, your company can operate as a Payment Services Provider (PSP).
Designed to ensure the safety and security of the country’s payment systems, the RPAA regulation applies to the MSBs acting as Payment Service Providers and identifies the rules to protect consumers and their funds, as well as to reduce the financial and operational risks. Meanwhile, the key regulatory body for PSPs is the Bank of Canada, which is responsible for monitoring their ongoing compliance. In practice, operating as a PSP under RPAA gives you remarkable regulatory clarity from day one and tunes your business for financial integrity, which is crucial for building long-lasting trust with your clients and partners.
Permitted activities
You already know that the MSB licensing is a gateway to secure and advantageous operation in the Canadian market. However, what about the scope of services you can provide with this kind of license? Once you obtain your MSB crypto license in Canada, you can legally perform the following operations:
- Money transferring;
- Foreign exchange dealing, including fiat-to-fiat and fiat-to-crypto;
- Payment service provider (available under additional registration with the Bank of Canada);
- Issuing and redeeming money orders;
- Operating crowdfunding platforms;
- Dealing in virtual currencies.
According to the Section 5 of the Proceeds of Crime and Terrorist Financing Act, and guidance from FINTRAC, MSBs can provide the following services:
| Type of crypto license/ Permitted activities | Foreign Exchange Dealing | Payment Service Provider | Crowdfunding Platform | Money Transferring | Issuing/Redeeming Money Orders | |
|---|---|---|---|---|---|---|
| Exchanging one national currency for another (e.g., EUR to USD). | Intermediating electronic payments between buyers and sellers. | Trading or exchanging fiat for crypto, or crypto for crypto. | Providing platforms for others to raise funds (fiat or crypto) via donations. | Sending or receiving funds via any means (remittance). | Creating or cashing instruments like money orders or traveler's cheques. |
Requirements to Obtain an MSB License in Canada
Once you have decided to secure your operations with an MSB license, the next step is to ensure your project meets all the eligibility requirements. The centerpiece of compliance is strong internal security policies, complete documentation, and the appointment of the key personnel. Below is the overview of the key regulatory standards you will need to meet as you step onto your licensing journey in Canada:
Compliance Requirements
The requirements your company must meet before you can officially register it in Canada include the following:
- At least 1 director and 1 shareholder (can be the same person);
- No Canadian residency required;
- Compliance Officer (can be a foreigner);
- Canadian register/mailing address required;
- No minimum share capital requirement;
- Internal risk management policies, such as AML and CTF.
Required documents
Once the eligibility criteria for your project’s incorporation are met, it’s time to collect and submit all the required documents for your application. Keep in mind that the list of documentation differs for individuals UBOs/directors and corporate structures. Overall, the set of required documents for MSB application includes the following:
- Notarized passport copies;
- Certified proof of address;
- Resume;
- Declaration of no criminal record;
- AML and KYC policies;
- Detailed business plan;
- Source of funds;
- Cash flow models;
- Company incorporation documents;
- Identification of all directors and UBOs.
The key thing to remember is that FINTRAC can request additional paperwork at the revision step, depending on your project structure and risks involved in the operations.
Steps to Obtain a Crypto License in Canada
The total timeframe of your licensing process starts from 6 months and is heavily dependent on your business model, documentation completeness, and other factors. Here is what your MSB application roadmap will look like:
1. Company name reservation
The process begins with reserving the name for your business. You will do it by submitting 3 name options in the order of preference for review, and once approved, one of them will be reserved for your project. This step typically takes 2 working days to complete.
2. Company registration
Next, proceed with incorporating your company into the local corporate register. There are two levels where businesses can be registered in Canada:
- Federal (Canada-wide);
- Provincial (at the level of the 10 Canadian provinces).
Overall, this process typically takes within 3 business days.
3. Document preparation and FINTRAC compliance
Once your company is officially registered, it’s time to prepare and submit the FINTRAC MSB pre-registration form. At this stage, you’ll need to collect all the necessary documentation, which confirms your project’s full compliance with the regulatory standards. It mainly includes the AML and KYC policies and other crucial documents. Submitting your form and documents typically takes 1 or 2 business days and is followed by FINTRAC’s revision of your documents and MSB form.
4. Final FINTRAC confirmation
As your application and documents are being carefully reviewed by FINTRAC, be prepared for requests for additional documents if needed. Once your application is approved, you will receive FINTRAC’s final confirmation and MSB entry into the official registry. Depending on the completeness of your application and your project’s compliance, this step takes from 2 months in total.
5. PSP registration
The final, and also optional, step is your PSP registration with the Bank of Canada. This step, however, is applicable only if you plan to operate as a Payment Service Provider. This process can be completed within 2 months.
Overall, the entire MSB licensing procedure takes around 7 months after submitting the FINTRAC application. To ensure your smooth and efficient completion of each step of the process, make sure to cooperate with legal professionals who will help you navigate all license-related nuances.
Benefits of Obtaining an MSB License in Canada
Securing a Canadian MSB licensing is a crucial step towards efficient and clear operations in the sector and offers a wealth of business benefits:
1. Reputable jurisdiction for fintech and crypto-related services
First of all, entering Canada’s market means operating from a highly respected global hub. This step, in turn, helps businesses build instant trust with their clients and investors.
2. Business-friendly legal system and favorable tax regime
Next, Canada’s legal and tax environment is known as remarkably clear and predictable, which significantly helps businesses expand with ease and confidence. This jurisdiction, as a frontier in crypto innovation, provides a well-regulated crypto landscape, making this country a favorable destination for both startups and established companies.
3. No local director or shareholder required
No complicated residency rules anymore. You don’t need a local director or shareholder to operate legally. It makes the Canadian crypto market eminently accessible for international operators seeking to take the lead.
4. 100% remote company formation
With no local presence required, you can launch your project and secure it with an MSB license totally remotely at any convenient time for you. This is a massive advantage compared to the business registration requirements in other popular destinations.
5. Single license covering multiple activities
Finally, from exchange and money transferring to dealing in virtual currencies, you can offer a wide range of services under a single MSB licensing. With one license, you get to enjoy many possibilities for seamless entry to the crypto market.
Conclusion
With crypto moving so fast, securing your operations with a reputable license is essential for your smooth and effective business expansion. If you prioritize regulatory clarity and look for a business-friendly crypto landscape, the Canadian MSB license is the perfect option for you. Combining a flexible registration process, favorable taxation, and universal licensing for multiple activities, this jurisdiction stands out as one of the most crypto-friendly destinations available today.
With no local presence and a minimum share capital required, you can start your application journey even today. Meanwhile, the end-to-end legal support will help you obtain your license in the shortest possible time, with no delays and unexpected complications.
FAQs
What is an MSB license, and why is it important for cryptocurrency businesses in Canada?
An MSB license is a Money Services Business registration issued by FINTRAC, Canada’s financial regulator in the crypto sector. This licensing is crucial for cryptocurrency businesses as it is provides legal and regulatory authorization for companies seeking to operate services like crypto-fiat exchange and virtual currency transfers in Canada. It also ensures the business’s ongoing compliance with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws, which are essential for secure business launch and growth.
How can I determine if my cryptocurrency business needs an MSB license in Canada?
Your crypto business needs an MSB license if you are dealing in virtual currencies, such as exchanging or transferring crypto, and are serving clients in Canada, even if you are located internationally. Overall, all crypto activities in the country are overseen by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which requires all crypto exchanges and dealers to register as MSBs and implement strict security protocols in order to continue operating legally. Those policies mainly include the Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) protocols that aim to protect both your clients’ funds and your company’s financial integrity.
What is the application process for obtaining a crypto license in Canada?
Here is how your MSB application journey will look:
- Company name reservation
First comes reserving the name for your company. It is done by submitting 3 name options in the order of preference for review, and once approved, one of them will be reserved for your project. This step usually takes as little as 2 working days to complete.
- Company registration
The next step is to proceed with incorporating your company into the local corporate register. There are two levels where businesses can be registered in Canada:
- Federal (Canada-wide);
- Provincial (at the level of the 10 Canadian provinces).
This process typically takes within 3 business days.
3. Document preparation and FINTRAC compliance
After your company is officially registered, you can start completing and submitting the FINTRAC MSB pre-registration form. For that, you’ll need to collect all the necessary documentation, which confirms your project’s full compliance with the regulatory standards, such as the AML and KYC policies and other crucial documents. This step is followed by FINTRAC’s revision of your documents and MSB form.
4. Final FINTRAC confirmation
Once your application is being reviewed by FINTRAC, be ready for the video interview invitation or FINTRAC’s request for additional documents. When the application is approved, you will receive FINTRAC’s final confirmation and MSB entry into the official registry. Given the completeness of your application and ongoing compliance, this step takes from 2 months in total.
5. PSP registration
The last, and optional, step in the licensing process is your PSP registration with the Bank of Canada. This step, however, is applicable only if you plan to operate as a Payment Service Provider. This process can be completed within 2 months.
In total, the MSB licensing procedure typically takes from 6 months after submitting the FINTRAC application. For smooth and efficient completion of each step of the process, make sure to contact our legal professionals who will help you navigate all license-related nuances.
What are the compliance requirements for obtaining an MSB license in Canada?
The major compliance standards your company will have to meet before you can officially register it in Canada include the following:
- At least 1 director and 1 shareholder (can be the same person);
- No Canadian residency required;
- Compliance Officer (can be a foreigner);
- Canadian mailing address required;
- No minimum share capital requirement;
- Internal risk management policies, such as AML and CTF.
How does the Canadian MSB license compare to other crypto licenses, such as CASP in Europe?
There are some significant differences between how the Canadian Money Service Business (MSB) and other jurisdictions’ licenses work. First of all, granted by FINTRAC, MSB is a broader license that encompasses both traditional money services and cryptocurrency activities, essentially combining the functionality of a fiat payment license with crypto exchange and transfer permissions, similar to a European Electronic Money Institution (EMI) plus a Virtual Asset Service Provider (VASP).
Second, while the Canadian MSB is often noted for a faster application process, fewer local substance requirements, and no high minimum capital requirements compared to the more specialized and sometimes more stringent CASP (Crypto-Asset Service Provider), formerly known as VASP, licenses under the EU’s MiCA regulation. Meanwhile, the major benefit of a European license is the “passporting” right to operate across all EU member states with a single authorization.
How long does it take to receive approval for an MSB license in Canada?
It usually takes from 6 months to complete the remaining licensing steps after submitting your FINTRAC application for revision. The revision step, in turn, typically takes around 2 months, depending on the completeness of your documents and your effective communication with the regulator. It is important to respond to the regulator’s requests quickly, as the licensing timeframe is directly tied to the authority’s revision of your documents and application.
