Copyright 2010, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Financial Services, November 2010
On November 10, 2010, Raymond Bachand, Minister of Finance of the Province of Quebec, introduced legislation regarding the licensing of money-services businesses: An Act to enact the Money-Services Businesses Act and to amend various legislative provisions mainly concerning special funds and the financial sector (Bill 128).
The proposed Money-Services Businesses Act covers many of the same services and issues that are already dealt with in the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Federal Act). However, a key aspect of the Bill appears to be provisions that will provide and allow for sharing of information between Quebec regulatory, governmental and law enforcement entities, particularly with respect to licensing decisions and any cessation in activities of money-services businesses.
It remains to be seen whether and how the Quebec legislation will streamline efforts and administrative requirements with the federal authorities to avoid unnecessary duplication in requirements for Quebec money-services businesses. This may be clarified in the course of the legislative process and once the Bill's implementing regulations are proposed.
Under the proposed legislation, persons or entities operating money-services businesses will require licences, with the following services considered to be money services:
- currency exchange,
- funds transfer;
- the issue or redemption of traveller's cheques, money orders or bank drafts;
- cheque cashing; and
- the operation of automated teller machines, including the leasing of a commercial space intended as a location for an automated teller machine if the lessor is responsible for keeping the machine supplied with cash.
The proposed legislation will not apply to persons who offer money services as part of their activities if these activities are governed by other specified legislation. For example, banks are exempt from the proposed legislation. However, the exemptions do not apply to most entities that are already money-services businesses subject to the Federal Act.
The Autorité des marchés financiers (the AMF) will be the regulator responsible for the administration and enforcement of the Quebec money-services regime and is to propose the regulations under the legislation (with the approval of the Minister or, in some cases, the government).
Among the proposed conditions to obtain a licence, a potentially troublesome requirement in the current drafting of the Bill is that the director, officer or partner of a money-services business applying for a licence must "be domiciled in Quebec or have a place of business or place of work in Quebec". For those entities that are Quebec-based or have a director or officer with a domicile or a place of business in the province, this may not be a difficult requirement. However, the legislation would also apply to entities that do not have a physical presence in the province but that nevertheless offer money services in Quebec, such as through the Internet or through Quebec-based agents or mandataries. In these latter cases, this requirement may be particularly problematic for businesses that do not have a director or officer with a domicile or place of business in Quebec.
A second concern regarding the licensing conditions is that several of the suitability conditions apply not only to the applicant and its directors, but also to each of the following, in respect of an applicant: "officers, directors, partners or branch managers... each of its employees working in Québec..." and "any other person specified by regulation". Certain conditions will also apply to agents of a money-services business and each of an agent's employees whose functions are related to the money-services business. The current drafting of the legislation therefore has a wide reach and, while draft regulations have not been provided, additional persons involved in the money-services business could be caught by the concept of "any other person specified by regulation". Money-services businesses will want to follow development of the Bill and regulations on this point.
Other licensing conditions are not likely to be problematic for an established money-services business, since most of these focus on the "suitability" of the corporate entity as the applicant. However, we suggest that money-services businesses should review the application requirements and licence decision provisions of the proposed legislation to determine whether there are any conditions that are of concern to them.
The proposed legislation includes requirements regarding identifying customers and co-contracting parties of a money-services business and maintenance of specified records and registers, notwithstanding that the Federal Act already imposes these types of requirements on those money-services businesses that are subject to the federal regime.
The required records and registers must be kept in Quebec, must be maintained in such a manner so as to allow auditing and must be readily available to the AMF. This requirement will be problematic for money-services businesses operated outside Quebec but offering services to residents of Quebec. Money-services businesses will want to monitor developments in this respect that may be introduced during the legislative process.
The detailed licence application and ongoing requirements for money-services businesses subject to the proposed legislation will be set out in regulations. In particular, the regulations may require certain money-services businesses to provide security for the performance of their obligations and will establish the amount and form of security required. This has the potential to impose significant new requirements on money-services businesses and will likely be of concern to many such businesses.
Licensed money-services businesses that want to cease activities will be required to give the AMF notice. The proposed legislation also provides for significant information sharing between the AMF, the Sûreté du Québec, local police forces and the Ministère du Revenu, particularly with respect to licensing decisions and suspension or cessation of the activities of a money-services business.
The AMF will have enforcement powers under the proposed legislation, including a right to compel self incriminating testimony, and that legislation also includes certain material penal provisions.
Given the duplication of many aspects of the proposed legislation and the Federal Act, an indication of how the legislation proposes to avoid duplicating requirements applicable to businesses that will be subject to both regimes would be helpful for affected businesses. Similarly, the proposed legislation could be improved by clarifying the manner in which requirements under the Act will apply to money-services businesses that operate from outside the province, whether online, through agents in Quebec or otherwise.
Measures such as the following would greatly ease the application and implementation of the proposed legislation, particularly for entities operating outside Quebec or that are subject to the Federal Act:
- allowing entities without a presence in Quebec to provide the AMF with access to required records and registers from within the province, but without requiring these to be physically located in Quebec;
- exempting entities subject to the Federal Act that already keep substantially similar records and registers under the Federal Act from the requirement to keep separate records under the proposed Quebec legislation;
- setting out principles with respect to the application of the proposed legislation that will, in practice, favour streamlining of the Quebec requirements with those under the Federal Act; and
- requiring the AMF to seek out appropriate agreements with the relevant federal entities, such as FINTRAC, in order to avoid unnecessary duplication in supervisory functions.
At the request of the official opposition, Bill 128 is expected to be subject to some form of public consultation but further information is not yet available in this respect. Businesses that provide "money services", as defined by the proposed Act, whether in Quebec or to residents of Quebec, may want to consider making representations regarding this proposed legislation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.