Money-services businesses (MSBs) should already be aware that Quebec’s new Money-Services Businesses Act (the Act) came into force on April 1, 2012 for persons or entities offering the following money services for remuneration:
- currency exchange;
- funds transfer;
- the issue or redemption of traveller’s cheques, money orders or bank drafts; and
- cheque cashing.
Ongoing compliance obligations under the Act came into force on April 1, 2012. However, MSBs have a six‑month transitional period (i.e. until October 1, 2012) in which to file an application with the AMF for a licence of the appropriate class(es) and may continue operating their MSB in the interim until the AMF renders a decision on the licence application.
Provisions under the Act that apply to the operation of automated teller machines (ATMs) will however only come into force on January 1, 2013, with further regulatory developments specific to ATMs expected before then. Requirements under the Act in respect of ATMs are not addressed in this bulletin.
Following a consultation period by the Autorité des marchés financiers (AMF) with various stakeholders, the final versions of the Regulation under the Money-Services Businesses Act (Regulation), the Regulation respecting fees and tariffs payable under the Money-Services Businesses Act (Fees and Tariffs Regulation) and the AMF’s Policy Statement to the Money-Services Businesses Act (Policy Statement) were recently finalized and also came into force April 1, 2012.
Application of the Act
MSBs may recall that, when it was adopted in December 2010, the Act was touted as an important part of the Quebec government’s offensive against money laundering and tax evasion schemes. The Act applies separately from, and in addition to, any relevant requirements that may apply to MSBs under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Federal Act), although persons or entities that offer money services as part of activities governed by other legislation specified under the Act, such as Quebec or federally regulated financial institutions, are exempt from the Act.
The Act applies to both Quebec-based MSBs, as well as to MSBs that are not constituted under the laws of Quebec and that do not have their head office or an establishment in the province but that offer their services in Quebec, including entities that offer money services to persons in Quebec through the Internet. The Act also applies to MSBs irrespective of whether they offer their services to the public directly or through the intermediary of agents or mandataries.
As mentioned, the Act requires MSBs to hold a licence of one or more of the following classes: (1) currency exchange, (2) funds transfer, (3) the issue or redemption of traveller’s cheques, money orders or bank drafts, and/or (4) cheque cashing.
The licence application process will involve providing the AMF a significant amount of information and documentation regarding the MSB, including information regarding its legal structure, officers, directors or partners and branch managers, persons or entities that directly or indirectly own or control the MSB, employees of the MSB working in Quebec, mandataries of the MSB and officers of its mandataries responsible for the money services offered, financial institutions with which it deals, lenders other than financial institutions, its business plan, financial statements, establishments, and certain related entities.
As part of the licensing process, MSBs must appoint a respondent that satisfies conditions set out in the Act. The respondent is responsible for filing the licence application, acts as correspondent with the AMF for any follow-up related to the application of the Act and is responsible for providing all required documents and information to the AMF and replying to all requests from the AMF pertaining to the MSB.
The MSB and specified persons related to the MSB must meet conditions of suitability specified under the Act in order to obtain and maintain the MSB’s licence and will have a security clearance report issued on their behalf by the Sûreté du Québec (the Quebec provincial police) in connection with the licence application.
Fees payable in connection with MSB licence applications, necessary security clearance reports and annual licence fees are set out in the Fees and Tariffs Regulation.
Ongoing Compliance Obligations
In addition to the licensing requirements under the Act, a number of ongoing compliance requirements apply to MSBs as of April 1, 2012. These include:
- ensuring that officers, directors, partners and employees, if applicable, comply with the Act;
- identifying customers;
- verifying the identity of customers where transactions exceed a specified value;
- gathering information and documents regarding third parties that request transactions on behalf of customers;
- verifying the identity of co-contracting parties;
- gathering information and documents specified under the Act, maintaining specified records and registers and retaining such records and registers, in the manner and for the period specified under the Act; and
- providing notice to the AMF in various circumstances, including notice of any change in information filed with the AMF and any change likely to affect the validity of the MSB’s licence.
It is clear from the changes made to the final version of the Regulations under the Act that the AMF was receptive to the feedback it received from the money-services industry in response to the consultation process. Notably, compared with the draft Regulations that had been circulated for comment, the final Regulations include significant changes with respect to the information that must be gathered in identifying customers, when and how customer identity must be verified, the information that must be gathered regarding co-contracting parties and the timing of notification requirements to the AMF. MSBs that have been preparing to comply under the Act on the basis of the draft regulatory texts will want to ensure that they have consulted and considered the final versions of the Regulations and the AMF Policy Statement.
Despite these recent changes, a number of requirements under the Act continue to differ significantly from those under the Federal Act. MSBs should particularly review and consider the identity verification requirements under the Act, methods available for verifying identity for both face-to-face and off-site transactions, requirements in respect of co-contracting parties, the records and registers required under the Act, the acceptable forms and locations for records and registers and the retention period that applies in respect of information and documents collected under the Act.
MSBs should be aware that the Act allows for significant sharing of information between Quebec regulatory, governmental and law enforcement entities in connection with criminal or penal offences and the administration or enforcement of fiscal laws and provides the AMF with enforcement powers that include a right to compel self-incriminating testimony. The Act also includes a number of material penal provisions, with prescribed minimum and maximum fines that can be doubled in the case of a second or subsequent offence. Where a person is found guilty of an offence under the Act, the AMF is also entitled to recover investigation costs according to the tariff set by the Fees and Tariffs Regulation.
If they have not already done so, MSBs will want to review the processes, procedures and policies that they currently have in place to determine what particular changes are required in respect of Quebec operations in order to comply with the new ongoing requirements.