Written By Lisa Kakoske, Simon Grant, Karly Descoteaux and Kyle Falk-Varcoe
In June 2022, we summarized the key recommendations that came out of the Final Report of the Cullen Commission in our blog, The Cullen Commission Releases Its Final Report on Money Laundering in British Columbia—Key Takeaways. The Final Report concluded that the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) conducts relatively few compliance examinations of money services businesses (MSBs) and that the examinations are not done early enough after the MSB is established. The Commission proposed that the British Columbia Financial Services Authority (BCFSA) take on the role of regulating MSBs in British Columbia.
Following from these recommendations, British Columbia Bill 19: Money Services Businesses Act (MSBA) received Royal Assent on May 11, 2023. As a result, MSBs in British Columbia will soon be subject to greater oversight by the BCFSA.
Under the MSBA, MSBs are non-bank entities that provide transfer and exchange services, such as transmitting or exchanging funds and issuing or redeeming money orders. At the federal level, MSBs are already regulated by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Persons currently operating, or planning to operate, MSBs in British Columbia will soon be required to meet registration and reporting requirements, and may be subject to administrative sanctions for failure to comply with the requirements under the MSBA and future regulations.
Scope of the MSBA
The MSBA applies to persons who carry on the business of providing "money services" in British Columbia, with some limited exceptions. The MSBA defines money services as:
- foreign exchange dealing;
- remitting funds or transmitting funds by any means or through any person, entity or electronic funds transfer network;
- issuing or redeeming money orders, traveller's cheques or other negotiable instruments, other than cheques payable to a named person; and
- services included by regulation.
The definition of "money services" is similar to that of the PCMLTFA. A key difference in the definitions is that the MSBA does not include dealing in virtual currencies or other services included by regulation under the PCMLTFA, including the 2022 changes we discussed in our blog, Anti-Money Laundering Rules Expanded to Include Service Providers and Crowdfunding Platforms.
Regulations under the MSBA may exclude certain money services from the mandate of the MSBA in the future or add additional categories of money services that would be subject to the MSBA. There are currently no published regulations however we anticipate that regulations will be forthcoming.
Going forward, the BCFSA will be responsible for regulating MSBs in British Columbia and will appoint a Superintendent of Money Services Businesses (Superintendent) to supervise MSBs. MSBs will now have to register themselves under the MSBA by applying to the Superintendent before they begin to operate in British Columbia. The Superintendent will have a number of powers under the MSBA, including to investigate MSBs, to issue orders or to impose administrative penalties of up to $100,000. These powers are similar to those of FINTRAC under the PCMLTFA.
We have summarized some of the key provisions of the MSBA below:
No recovery or remuneration for MSBs that are not registered: No action can be brought or continued for any remuneration in relation to money services unless at the time the money services were provided, the MSB was registered or exempt under the MSBA. Remuneration is broadly decided in the MSBA as any commission, fee, gain or reward, whether the remuneration is received or expected to be received, either directly or indirectly.
Registration and renewal process: Applicants will be required to submit an application for registration or renewal, amendment or reinstatement to the Superintendent for MSBs. The Superintendent will have authority to refuse to register an applicant on a variety of reasons including where the applicant has had a license as a MSB, real estate or mortgage services provider refused, cancelled or suspended, been disciplined by a professional body or is insolvent.
Reporting: MSBs will be required to annually report certain activities to the Superintendent that will be prescribed in the regulation. MSB registrants will also be required to report certain changes to the Superintendent and to maintain books, accounts and records.
Enforcement and administrative penalties: The Superintendent has broad investigative and enforcement powers under the MSBA. In addition, the Superintendent has broad administrative penalties at its disposal if it finds that a person has contravened the MSBA, failed to comply with an order, condition or restriction of the Superintendent. The Superintendent may impose up to a $100,000 administrative penalty if it finds that the MSBA has been contravened.
Duty to report offences: A registrant must immediately notify the Superintendent if the registrant has reason to believe that an offence has been committed. If the Superintendent finds that a person or corporation has committed an offense under the MSBA it can be fined up to $200,000 and for an individual can be imprisoned up to two years, or both.
MSBA: A Gate-Keeping Tool
A key distinction between the MSBA and the PCMLTFA is that the Superintendent under the MSBA has broad powers to suspend, cancel or refuse the registration of MSBs registered or seeking registration to operate in British Columbia. Whereas the PCMLTFA is primarily a compliance regime, which focuses on the on-going regulation of MSBs, the MSBA is a gate-keeping regime that permits the BCFSA to prevent so-called 'bad actors' from entering into the money services business industry in British Columbia altogether.
The MSBA empowers the Superintendent to refuse to register (or renew the registration) of an MSB that is insolvent or that they consider "unfit" to be registered in British Columbia. The MSBA currently considers an MSB unfit if it, or an associate or agent of the MSB, has:
- been refused registration or a licence under money services, real estate, insurance, mortgage services or securities legislation in British Columbia or another jurisdiction;
- held a registration or licence that was suspended or cancelled under money services, real estate, insurance, mortgage services or securities legislation in British Columbia or another jurisdiction;
- been disciplined by a professional body; or
- been convicted of an offence under an enactment of British Columbia or a law of another jurisdiction.
The MSBA defines "associate" broadly to include any director, officer, partner, and registered or beneficial interest holder of an MSB. In doing so, the MSBA gives the Superintendent wide powers to limit entities and individuals from entering the money services industry in British Columbia.
While the MSBA has now received Royal Assent, there remain unanswered questions about how it will impact the money services industry in British Columbia, many of which will likely be answered following the introduction of its regulations. It is unclear at this time whether the MSBA only applies to MSBs that are physically located in British Columbia or to all MSBs operating in British Columbia. Additionally, we expect the regulations will set out which money services will be included or excluded from the MSBA going forward. On an administrative level, the scheme of the MSBA suggests that the registration of MSBs will be for specified term lengths, but the length of a registration term, and whether all MSBs will have the same term, has not yet been specified. Similarly, the forthcoming regulations are likely to set out registration fees for MSBs.
We continue to assess the changes to the money services industry in British Columbia. If you have any questions about the information in this blog post or regarding registering as an MSB in British Columbia, please contact the authors or a member of the Bennett Jones Financial Services group.