Cross-border transactions are becoming increasingly common amongst Canadian money service businesses (MSBs). You may be wondering if regulatory laws allow your Canadian MBS to serve US clients.
Without a proper license, you cannot expand to the US market. The international regulatory authorities impose strict rules when foreign MSBs want to serve US clients.
Can a Canadian MSB Serve US Clients?
A Canadian MSB can serve US clients if it maintains compliance with Canadian fintech laws and international regulations. You will have to ensure your FINTRAC MSB licensing is complete and active.
Canadian MSBs are also required to register with the Financial Crimes Enforcement Network (FinCEN) for a federal license in the US. If you have FINTRAC’s money service business approval but not FinCEN’s, you cannot serve clients in the US.
Why Serving US Clients Triggers US MSB License Requirements?
US financial regulators take an expansive view of jurisdiction. If your Canadian MSB accepts payments, sends funds, or provides money services to people in the US, your activity is regulated under international laws.
This regulatory requirement applies regardless of whether:
- Your business is based entirely in Canada
- You don’t have a physical presence in the US.
- You are not explicitly marketing to US residents
Getting a US MSB license will be essential to conduct fintech activities in the country.
What US MSB License Might you Need?
Unlike Canada, the US MSB license regulations are different. You need to get licenses at the federal and state levels. These include:
1. Federal MSB Registration with FinCEN
If your Canadian MSB is providing money transmission services to US residents, you are required to:
- Register as a MSB with the FinCEN
- Comply with US federal AML obligations, including appointment of a US compliance officer and a written AML program
Your MSB must also meet reporting and recordkeeping obligations of FINTRAC and FinCEN. Failure to get a US MSB license can lead to enforcement actions and criminal penalties.
2. State Money Transmitter Licenses (MTLs)
At the state level, a US MSB must file for a money transmitter license if it:
- Receive and transmit money on behalf of a customer
- Act as an intermediary in the funds transfer
- Issue stored value, e-wallets, or prepaid products
Some states define this broadly, so even crypto or API-based payment solutions may fall within scope. Filing and receiving approval for a MTL can be expensive and time-consuming. Typically, it takes one to two years to get licenses across all 50 US states.
Are There any Exemptions for Canadian MSBs to Serve Clients Without a US MSB License?
The US regulatory authorities don’t offer many exemptions for Canadian MSBs wanting to operate in the US. However, you can opt for alternative strategies if you don’t want to struggle with a US MSB license:
- Partnering with licensed US banks, EMIs, or white-labeled service providers to operate under their licenses with certain restrictions
- Being solely an agent of another MSB exempts you from US MSB registration
- Using a B2B-only payment processing model that serves commercial clients only
These strategies may help you operate in the US without a MTL or other regulatory licenses. You will also face specific restrictions when getting exempted using these options.
How we Help Canadian MSBs Enter the US Market
Our firm works with Canadian fintechs and MSBs looking to expand cross-border. We help you:
- Determine whether your activities trigger US MSB licensing obligations
- Identify appropriate exemptions or limited licensing paths
- Connect with trusted US law firms and compliance partners
- Structure relationships with licensed partners to operate compliantly
Other Renno Co. & Fintech’s measures such as obtaining banking rails will make serving US clients a breeze. You can rely on our experts to help your Fintech’s market expansion.
Serving the US Market is a Big Opportunity and Risk for Canadian MSBs: Let us Help you Navigate Them
Canadian MSBs wanting to expand to the US market will be facing high compliance risk. Managing to avoid the risks with proper licensing will help you enjoy a huge growth opportunity.
If you’re struggling on where to start if you want to serve US clients, we can help you. Our firm specializes in Canadian MSB registration and foreign licensing laws.
Contact us today to meet our fintech expert and learn whether the growth opportunities of US expansion outweigh the compliance risk for your MSB.
