Financial technology (also referred to as "FinTech")
and mobile payments are fast-growing areas of activity in Canada
right now. According to a 2014 study by the market research company
GfK, 21% of Canadian shoppers reported making a mobile payment in
the past six months (though compared to China at 83%, South Korea
at 62% and the United States at 33%, the market in Canada clearly
has room to grow).
Many Canadian companies are taking notice. PayPal's research
suggests that mobile spending in Canada may hit $4.9 billion by
2016. Millennials (18- to 34-year-olds) are driving growth, and
frequently use smartphones to prepay for food or drinks at
restaurants, scan barcodes/ Quick Response codes and pay through
mobile phone applications that integrate with point-of-sale
Companies operating in this space in Canada should be aware that
there is a sophisticated regulatory regime that governs many of the
above-described activities. Based on concerns about money
laundering, terrorist financing and other risks, federal
legislation regulates all "money services businesses,"
imposing requirements on companies with respect to reporting,
record-keeping and other compliance.
For example, the Proceeds of Crime (Money Laundering) and
Terrorist Financing Regulations currently define money services
businesses as: "persons and entities engaged in the business
of foreign exchange dealing, of remitting funds or transmitting
funds by any means or through any person, entity or electronic
funds transfer network, or of issuing or redeeming money orders,
traveller's cheques or other similar negotiable instruments
except for cheques payable to a named person or entity."
This definition is broad enough to capture a wide variety of
FinTech/mobile payments services (amendments that are not yet in
force broaden it even further to cover virtual currencies, as well
as persons and entities that may not have places of business in
Canada). For example, mobile payments or money-transfer websites or
applications presumably meet the definition of "remitting
funds or transmitting funds." While the words
"remit" and "transmit" are not formally defined
by the Regulations or the legislation, the word "funds"
means "cash, currency or securities, or negotiable instruments
or other financial instruments, in any form, that indicate a
person's or an entity's title or interest in
The federal agency responsible for enforcement – the
Financial Transactions and Reports Analysis Centre of Canada
(FINTRAC) – provides interpretive guidance on its website, as
well as answers to submitted questions. Several companies have
anonymously posted questions regarding the services they offer,
requesting whether FINTRAC would consider them to be "money
services businesses." For example, an app providing loyalty
incentives for consumers to store their change from in-store
purchases at select merchants and redeem it later – is that a
money services company? For now, FINTRAC suggests not; but that
position could subsequently change. How about a company whose
vouchers are purchasable in-store at select merchants and
transmitted abroad to be redeemed directly for goods and services
in other countries? FINTRAC's position today is that such
activity constitutes a money services business and is therefore
subject to regulation.
Being a money services business adds a layer of complexity to
your business. Requirements include registering with FINTRAC,
implementing compliance policies, identifying clients, keeping
records and submitting reports to the regulator. Obligations that
are not complied with can result in the assessment of penalties and
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.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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