money service business | Outlier Compliance Group

Quebec MSB Respondents

Since Quebec’s MSB Act came into force in 2012, there have been many questions about whether or not the law applied to entities that don’t have a physical presence in Quebec (the answer is yes, if you’re serving customers located in Quebec at the time of the transaction). Most recently, the Authorité des Marchés Financiers (AMF), Quebec’s provincial regulator, has announced that the law applies to digital currency ATMs and exchanges. One of the challenges for businesses that don’t have a physical presence in Quebec is designating a respondent within the province. While Outlier doesn’t have Quebec offices either, we’ve put together some resources to help you navigate the process.

Hefty Disclaimers

We’re not lawyers, and nothing in this article should be considered legal advice. While we’ve put together some resources that we hope will be helpful, you will need to decide on the right course of action for you and your business.

What Does A Respondent Do?

A respondent is a person or company that acts as your point of contact with the AMF. While this seems relatively simple on the surface, the respondent must pass relevant communications to you and pass information from you to the AMF, the requirements are actually more complex than this (see below for the full text from the MSB Act on respondents). A respondent must have premises in Quebec and be approved by the AMF. The AMF has taken the position that those involved in financial services (including respondents) must demonstrate “integrity and good moral character” (this is broadly defined) and the AMF can reject MSBs, agents and respondents that do not meet this criteria.

The MSB Act goes on to state that a respondent must be “able to properly exercise a respondent’s functions with the Authority.” This means that the respondent will need to understand how to communicate with the AMF (and while French language isn’t a requirement, it is definitely a benefit here). The respondent will also need significant access to information about your business and operations, both to assist in the application process and to communicate with the AMF.

Finally, there is some debate about the liability that the respondent bears in acting in this capacity for an MSB. We’ve reached out to the AMF for their position on respondent liability. The regulator’s position is that a respondent bears little if any liability, provided that they are acting “in good faith.” This means that the respondent is expected to have done some degree of due diligence regarding their MSB client, and that the respondent believes that the information that they are providing to the AMF is complete and accurate.

There is also a risk to MSBs. The respondent will act as your point of contact with the AMF. This means that the regulator will most often be communicating with your respondent, rather than with you directly.

What Should I Look For in a Respondent?

As the voice of your business with the AMF, you’ll want a respondent that has certain characteristics:

GOOD COMMUNICATION – Your respondent should be someone that the AMF can reach when they have information requests, and the respondent should be able to quickly pass these requests to you. If your respondent’s contact information changes, they’ll need to update this information with the AMF to avoid missing any information requests or other regulatory communication.

RELIABLE – Like most regulatory requests, when the AMF asks for information or clarification, there are generally strict timelines. Your respondent should be someone who understands this and will ensure that your responses are submitted on time.

INTEGRITY – Your respondent will need to pass a background check (this is required under the MSB Act) and deal with your confidential business information. It is vital that the respondent be someone that you can trust.

EXPERIENCE – The ideal respondent understands their role, your business and has experience dealing with the AMF. The respondent, in some cases, may also act as an advisor, helping you to devise the best strategy for your business.

PRICE TRANSPARENCY – The respondent is likely to be doing much more than passing messages between you and the AMF. You should have a clear understanding of the fees that you will pay and the work that you’ve authorized the respondent to complete on your behalf. Your agreement with your respondent should be spelled out in formal contracts.

What Do I Need to Do for the Respondent?

You should expect to provide the respondent with due diligence information. This will include information about your business and its beneficial owners and directors. This includes information that is required under the MSB Act as well as additional information that the respondent requires based on their own internal processes.

MSBs should be prepared to provide at least the following information early on in discussions with respondents:

The name and ID of all those employees involved in the MSB activity;
A list containing the name, date of birth, if applicable, domiciliary address and telephone number of each of its mandataries and of each of the officers of its mandataries who are responsible for the money services offered on behalf of the money-services business;
A list of the financial institutions with which it deals;
The MSB’s business plan; and
The MSB’s financial statements for the last fiscal year.

If you are uncomfortable providing this type of information before you have a signed agreement in place, you can always ask the respondent to sign a confidentiality agreement.

Respondent Contacts

The contacts below are people that we know and have spoken to personally about the respondent services that they provide. While we can’t guarantee anything that another person or company does, they’ve got our vote of confidence.

Respondents are listed in alphabetical order by first name.

Jean-François Lefebvre

Phone: (514) 608-0684

Email: jeanfrancoislefebvre9@gmail.com

Relevant specializations and experience: Jean-François has experience in advising MSBs and financial institutions, both as a regulator and as a consultant. He is a former FINTRAC senior representative and has dealt with the AMF in several instances in his career.

Marc Lemieux, Principal, Lemieux Legal Services

Phone: (514)-987-1117

Email: marc@marclemieux.com

Website: marclemieux.com

Relevant specializations and experience: Marc is a bilingual lawyer with experience in banking, payments, and MSBs. He currently serves as a member of the Board of Directors of the Canadian MSB Association.

Michael Garellek, Associate, Gowlings LLP

Phone: 514-392-9421

Email: Michael.Garellek@gowlings.com

Website: www.gowlings.com

Relevant specializations and experience: Michael’s experience includes working directly with the AMF, as well as, dealing with the AMF on behalf of his financial services clients.

Need A Hand

If you’re not sure if the MSB Act applies to you, or need assistance in finding a respondent, please contact us.

The MSB Act on Respondents (Full Text From the MSB Act)

5. A licence application must be filed together with the fee determined by regulation and filed by a person acting as the business’s respondent for the purposes of this Act.

The respondent must

(0.1) be a director, officer or partner of the money-services business;

(1) be 18 years of age or over;

(2) not be under tutorship, curatorship or advisership;

(3) be domiciled in Québec or have a place of business or a place of work in Québec; and

(4) meet any other condition set by regulation.

The money-services business must give the respondent access, at the business’s head office and in all its establishments, to the information and documents needed to exercise the respondent’s functions.

The respondent for a money-services business that is not constituted under the laws of Québec and does not have its head office or an establishment in Québec need not be a director, officer or partner of the business but must be able to properly exercise a respondent’s functions with the Authority.

Insights From the 2014 CMSBA Conference

We were honoured to present at this year’s Canadian MSB Association (CMSBA) conference in Toronto. Speakers included representatives from the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the Canadian Federation of Independent Businesses (CFIB), money service businesses (MSBs), consultants, lawyers and technology service providers. Priced between CAD 200 and 250 (depending on membership status and the timing of the registration), the price of this annual event, which includes breakfast, lunch, a post event reception, an annual CMSBA membership and a training certificate is likely one of the most informative and reasonably priced resources for MSBs. We would like to thank the CMSBA for providing a top quality event.

The Big Disclaimer

The information that follows is based on our experience attending the conference, and the information that we feel will help our friends and clients the most. While there were many excellent sessions, we weren’t able to enjoy them all. If you feel that we’ve missed something vital, or misrepresented an important point, please feel free to contact us and we’ll do our best to correct it.

FINTRAC Exams Are Changing

Lisa Douglas of FINTRAC tackled an update on the regulators expectations with candor, diplomacy and even a sense of humour on occasion. Among the most important points for reporting entities was the implementation of the regulatory changes that came into effect in February of 2014, and changes to the types of testing that FINTRAC will be performing in examination:

Business Relationships: has the nature and purpose of the business relationship been documented? Has the customer been identified where there is a business relationship (and if not, are efforts to identify the customer documented)? Is ongoing monitoring in place?
Suspicious Activity: Do the policies and procedures reflect the right indicators for the business model (see FINTRAC’s Guideline 2 for a full list)? Is there activity that seems to be suspicious that was not reported? If so, are you able to explain objectively why the activity was not considered to be suspicious (and is the explanation backed up by documentation)?
Ongoing Monitoring: Are monitoring efforts documented? Is the monitoring for high-risk customers and business relationships different (in nature and frequency)?
Beneficial Ownership: Is there documentation that confirms beneficial ownership? If not, has Senior Officer been identified and is the customer classified as high risk?
Customer Information Updates: Is customer information being updated on a regular schedule according to the customer’s risk?
Quality Reporting: Are the reports that FINTRAC receives complete and accurate? Are all fields (including fields that aren’t mandatory) completed if you have the information on file?

Ms. Douglas received the most questions about applying an ‘objective standard’ to deciding whether or not there are reasonable grounds to suspect money laundering or terrorist financing activity, and stressed that it is not enough to know that the activity is consistent for a customer over time if the activity could be indicative of money laundering or terrorist financing. This theme was echoed by Paul Burak of MNP LLP in his discussion of customer due diligence. In his illustrative example, Mr. Burak described a hotel that made large cash deposits with few credit card or debit card payments, in volumes that were out of synch with local tourist traffic. While the pattern of activity was consistent for the client over time, it did not make sense when an objective standard was applied.

There are Many More MSBs with ‘Zero Deficiencies’ Than MSBs with Penalties

Although there are several published administrative monetary penalties that have been published for MSBs, approximately 25% of MSBs examined between 2008 and 2014 have passed examinations with zero deficiencies. While this isn’t likely to reduce the stress that comes with preparing for an examination, the information (obtained from a recent access to information request that Outlier filed with FINTRAC) is important in understanding that the MSB industry has historically been more compliant than the headlines would have us believe. That said it’s always vital to take the time to prepare for your examination and ensure that all of the materials requested by FINTRAC are assembled and delivered on time. We’ve put together some free resources to help reporting entities get organized, available here.

We were fortunate enough to co-present on this topic with two very experienced lawyers, J. Bruce McMeekin and Tushar K. Pain. Both emphasized the importance of reaching out to a legal professional early if you may be facing an administrative monetary penalty, as well as the value of regular compliance testing (not just limited to the effectiveness reviews required every two years) to assess compliance and fix anything that may be offside.

Banking Remains an Issue for MSBs

Robert Osbourne of Grant & Thornton provided excellent insights on maintaining banking relationships, including requesting and account manager, and maintaining regular contact (rather than simply responding to issues or information requests). Despite recent public policy positions from the Financial Action Task Force (FATF) and Financial Crimes Enforcement Network (FinCEN) warning against wholesale de-risking, few Canadian banks are currently accepting MSBs. Among those that we are aware are taking on MSB customers:

Royal Bank of Canada (RBC)
Bank of Montreal (BMO)
DirectCash Bank (DC)

There are additional financial institutions, including credit unions that offer accounts to MSBs, however many of these are not currently taking on new MSB customers. Access to banking is one of the issues that we’re likely to hear more about from both the CMSBA and the CFIB in the coming months.

Tools and Technology

The importance of tools and technology for recordkeeping and compliance management cannot be understated. The Canadian market is served by a number of great providers, and more solutions are being added on a regular basis. The solutions that are implemented should be well aligned with your business model and Risk Assessment. They should also be secure, in particular where sensitive or personal information (PI) is stored. Garry Clement of Clement Advisory Group emphasized how vulnerable the industry may be to cyber threats, and steps that MSBs can take to recognize threats and protect their data.

Digital Currency

Jillian Friedman of the Bitcoin Embassy (formerly, now she can be found at montrealtechlawyer.com) and Susan Han of Miller Thompson provided an overview of digital currency. While it was clear that many MSBs are interested in the potential that bitcoin and other digital currencies can offer, the same barriers to banking faced by MSBs are faced by digital currency companies in Canada. MSBs that deal in digital currency may face additional de-risking concerns with their banks. Zach Ramsay of CoinCulture, though not presenting, was on hand to offer clarification about the digital currency related services that may interest MSBs including bitcoin teller machines (BTMs) and bitcoin payment processing.

Need a Hand?

If you would like more information about the CMSA, including information about how to become a member, you can contact them here.

If you have questions about AML or ATF compliance, please contact us for more information.

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