On March 29, 2023, British Columbia introduced Bill 19, the Money Services Businesses Act (B.C. MSB Act), which proposes to regulate money services businesses (MSBs) operating in the province. The regulation of MSBs in B.C. was one of the recommendations of the Cullen Commission, which concluded that greater scrutiny of MSB activities was required, beyond that provided by the Financial Transactions and Reports Analysis Centre. There are some interesting provisions and unanswered questions that arise from the B.C. MSB Act.
OVERVIEW AND IMPACT
The B.C. MSB Act proposes that the British Columbia Financial Services Authority (BCFSA), the provincial regulator of financial institutions, be responsible for the regulation of MSBs operating in the province. BCFSA will appoint a Superintendent of Money Services Businesses (Superintendent) to supervise MSBs.
As a result, an additional level of regulation will now be imposed on MSBs carrying on business nationally. In addition to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), the Quebec Money Services Businesses Act (Quebec Act) and soon the Retail Payments Activities Act, MSBs operating in British Columbia will also be subject to the B.C. MSB Act, if passed.
As there are currently no regulations under the proposed B.C. MSB Act, it is difficult to comment on the extent of the obligations to be imposed on MSBs under the B.C. regime and whether they will duplicate other requirements. The B.C. MSB Act, on its face, seems to be more of a gatekeeping regime aimed at ensuring that “bad actors” are kept out of the MSB space in the province.
Definition of an MSB. The definition of a money services business parrots the language in the PCMLTFA. However, as many involved in the MSB space are aware, what type of business constitutes a MSB has always been the subject of interpretation. Until April 2022, payment service providers were not considered to be MSBs, nor were crowdfunding platforms. It will be interesting to see who BCFSA interprets to be subject to the B.C. MSB Act. We note that the B.C. MSB Act exempts financial institutions, securities dealers and insurance companies from its scope. It also proposes the exemption of other MSBs pursuant to the regulations.
Prohibition on Actions for Remuneration. One of the more interesting provisions of the B.C. MSB Act is a prohibition on an unregistered MSB from bringing an action for remuneration in relation to money services provided. Remuneration is defined to include “any form of remuneration including any commission, fee, gain or reward, whether the remuneration is received, or is to be received, directly or indirectly.”
Annual Reporting to BCFSA. MSBs registered under the B.C. MSB Act will be required to provide annual reports to BCFSA respecting the MSB’s activities in that fiscal year. The report will contain prescribed information that will be set out in the regulations.
Record-Keeping Requirements. There are also record-keeping requirements imposed on MSBs regarding “books, accounts and other records.” Details about these requirements will be set out in the regulations. Hopefully, the records required will be in keeping with those required under existing MSB legislation so that MSBs do not have to maintain even more records than those required under the PCMLTFA and the Quebec Act.
Duty to Notify of Certain Events. The B.C. MSB Act will also require MSBs to notify BCFSA of certain events, including:
(a) where there is a change in any information about the MSB maintained in the MSB register;
(b) where the MSB appoints a new agent;
(c) any change of directors and officers;
(d) any change of partners in a partnership;
(e) any change in “corporate interest holders” of a corporation. A “corporate interest holder” is defined to include any person that holds 10% or more of the shares of a corporation (directly or beneficially) or has “indirect” control of any such shares. Shares do not have to be voting shares to be caught by this 10% threshold. The definition also catches those with “de facto control” including the right or ability to elect, appoint or remove the majority of the directors of the corporation or the ability to exercise “direct and significant influence” over an individual who has de facto control. There are also other criteria in respect of who is a “corporate interest holder” and regulations on certain of these definitions is also expected. How these provisions will be interpreted by BCFSA remains to be seen, but it is clear that BCFSA intends to cast a very broad net;
(f) any change in any of the matters in (c), (d) and (e) above in respect of the MSB’s agents. To comply with this significant requirement, MSBs will need to monitor their agents’ internal management and shareholdings. For MSBs with many agents, this will be an onerous task. Hopefully, it will be limited to agents in British Columbia only.
Registered MSBs must provide notice of most of the foregoing changes at least three months before the engagement or change takes effect. If the registrant is not aware of the engagement or change three months ahead, however, it must notify BCFSA as soon as practicable after it becomes aware of the matter. There are no similar pre-notification requirements in either the Quebec Act or the PCMLTFA.
Enforcement Powers. The Superintendent has very broad enforcement powers under the B.C. MSB Act as well as a “name and shame” power regarding MSBs that have been the subject of an administrative penalty or subject to a Superintendent order or decision. In addition to administrative penalties, there are penalties for committing offences which can include up to two years of imprisonment.
Duty to Report Offences. If an MSB determines that an offence has been committed related to registration under the B.C. MSB Act, it must notify the Superintendent. This applies to “every registrant” under the B.C. MSB Act who determines that they have breached the legislation or is aware of a third party being in breach (i.e., carrying on business without a licence).
It is clear that the regulatory requirements imposed on those in the payments world continues to expand.
For further guidance on these regulatory changes or other matters relating to money services businesses, please contact:
Jacqueline Shinfield +1-416-863-3089
Alan Fraser +1-416-863-3172
or any other member of our Financial Services Regulatory group.
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