Regulations for Crypto license in Canada

Canadian cryptocurrency regulations are designed to promote transparency, protect consumers, and prevent illegal activities and falls under Money Service Business (MSB) license, which is regulated by Financial Transactions and Reports Analysis and Analysis Centre (FINTRAC) , which is Canada’s Financial Intelligence Unit, Anti-Money Laundering (AML) and Anti-Terrorist Financing (CFT) supervision authority. Financial service providers must comply to Canadian laws to assist the government in identifying and fighting criminal activities, including money laundering.

Canada’s regulatory framework for crypto licenses is designed to provide clarity and security for cryptocurrency businesses, investors, and consumers. The regulations encompass a broad range of requirements and standards aimed at ensuring transparency, security, and compliance within the digital asset ecosystem. Here are the key regulations for obtaining a crypto license in Canada:

1. Registration and Licensing

1. Registration and Licensing

  • Mandatory Registration: All cryptocurrency exchanges, wallet providers, and other related businesses must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
  • License Types: Depending on the nature of the business, different types of licenses may be required, such as those for crypto exchanges, wallet services, or custodial services.
2. Anti-Money Laundering (AML) and Know Your Customer (KYC)

2. Anti-Money Laundering (AML) and Know Your Customer (KYC)

  • AML Compliance: Businesses must implement comprehensive AML policies to detect and report suspicious transactions. This includes keeping detailed records of transactions and reporting large transactions to FINTRAC.
  • KYC Requirements: Companies must establish and verify the identity of their customers through stringent KYC procedures. This involves collecting personal information and conducting background checks to ensure compliance with regulatory standards.
3. Financial Reporting and Auditing

3. Financial Reporting and Auditing

  • Regular Audits: Licensed crypto businesses are required to undergo regular financial audits by independent auditors to ensure transparency and compliance with financial regulations.
  • Reporting Obligations: Businesses must submit periodic reports on their financial status, transaction volumes, and compliance with regulatory requirements to relevant authorities.
4. Consumer Protection

4. Consumer Protection

  • Transparency: Companies must provide clear and comprehensive information to customers regarding their services, fees, and the risks associated with cryptocurrency transactions.
  • Customer Funds Protection: Measures must be in place to safeguard customer funds, including the use of secure and insured custodial services.
5. Cybersecurity Standards

5. Cybersecurity Standards

  • Security Protocols: Businesses must implement robust cybersecurity measures to protect against data breaches, hacking, and other cyber threats. This includes the use of encryption, multi-factor authentication, and regular security assessments.
  • Incident Reporting: In the event of a security breach or cyber incident, businesses must promptly report the incident to relevant authorities and take steps to mitigate any potential damage.
6. Operational Requirements

6. Operational Requirements

  • Capital Requirements: Certain minimum capital requirements may be imposed to ensure that businesses have sufficient financial resources to operate and cover potential risks.
  • Internal Controls: Companies must establish strong internal controls and governance frameworks to ensure compliance with regulatory standards and to manage operational risks effectively.
7. International Cooperation

7. International Cooperation

Cross-Border Regulations: Businesses that operate internationally must comply with both Canadian regulations and the regulations of other jurisdictions in which they operate. This may involve cooperation with foreign regulatory bodies and adherence to international standards.

8. Innovation and Adaptability

8. Innovation and Adaptability

  • Regulatory Sandbox: Canada may offer a regulatory sandbox to allow businesses to test innovative products and services in a controlled environment under regulatory supervision.
  • Ongoing Adaptation: The regulatory framework is designed to be flexible, allowing for updates and changes as the cryptocurrency market evolves and new technologies emerge.

Services You Can Provide With MSB License In Canada

In Canada, a Money Services Business (MSB) license allows a company to offer a variety of financial services related to the handling and exchange of money, including virtual currencies. Holding an MSB license ensures that the business complies with the regulations set forth by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Here are the key services that can be provided with an MSB license in Canada:

License typeDescription of license

1. Dealing with virtual currency (cryptocurrency)

  • Buying and Selling: Facilitating the purchase and sale of cryptocurrencies like Bitcoin, Ethereum, and other digital assets.
  • Trading Services: Operating platforms or exchanges where users can trade cryptocurrencies.
  • Over-the-Counter (OTC) Trading: Offering services for large volume trades that require personalized assistance and secure transactions.

2. Foreign exchange dealing

  • Currency Conversion: Exchanging one fiat currency for another, such as converting US dollars to Canadian dollars or vice versa.
  • Forex Trading: Providing platforms for trading foreign currencies, including online forex trading services.

3. Money Transferring

  • Domestic Transfers: Facilitating the transfer of funds within Canada between individuals or businesses.
  • International Transfers: Offering services to send and receive money across international borders.
  • Remittance Services: Providing remittance services for individuals to send money to family or friends abroad.

4. Issuing or Redeeming Money Orders

  • Money Orders: Issuing and redeeming money orders, which are prepaid instruments used to pay a specific amount of money to a designated payee.
  • Payment Instruments: Managing other forms of payment instruments such as traveler’s cheques, prepaid cards, and similar financial products.

5. Crowdfunding platform services

Provision and maintenance a crowdfunding platform for use by other persons or entities to raise funds or virtual currency.

Compliance and Regulatory Requirements

Holding an MSB license also involves several compliance and regulatory obligations, including:

Overview of requirements to obtain Crypto license in Canada

  • Legal entity registered in Canada or Fintech licensed foreign legal entity
  • Company must be registered with FINTRAC
  • Physical office located in Canada for MSB registration with FINTRAC
  • Dedicated and experienced local Canadian Compliance officer
  • Share capital not indicated (recommended 10,000 CAD)
  • Translated and notarized non-criminal record for shareholder and director
  • All necessary measures to comply with AML policies

Estimated time frames

Gathering documents

1-3 days

Company formation

up to 1 week

Pre-application process and analyses

2-3 weeks

Crypto license obtainment from FINTRAC*

2-3 weeks

*The timeline also depends on the workload of FINTRAC and any clarifications and queries that FINTRAC may request in relation to the application.

Legal services for obtaining Crypto license in Canada

Basic Package

12,800 USD

  • Legal support with Crypto and Fintech expert
  • Company name verification and reservation (NUANS)
  • LTD Company registration with Ontario Business Register
  • Due-diligence for shareholder and key members
  • Legal Address for 1 year
  • Assistance with share capital registration
  • Corporate documents
  • Pre-registration with FINTRAC
  • Applying for MSB license
  • Communication with regulator authority FINTRAC
  • Assistance with employment of Compliance officer

Additional services on request

  • Physical office space rental, including rental agreement
  • Local compliance officer
  • Local director with financial background
  • Individual Business plan
  • AML/KYC Policy
  • Corporate bank account for high-risk
  • Accounting services
  • Apostilled corporate documents
  • Introduction to confirmed software provider

Ready-Made solution

available on request

  • Registered company
  • Legal address for 1 year
  • No debts, no liabilities – clean company
  • Active license
  • Corporate documents
  • Assistance with transfer of ownership

Eriks Fijalovs

Head of Blockchain and Crypto

Detailed Requirements for Crypto licensing in Canada

Obtaining a crypto license in Canada involves a comprehensive and multi-faceted process designed to ensure compliance with regulatory standards and the integrity of the financial system. Here is an in-depth look at the requirements for crypto licensing in Canada:

List of required documents

  • AML/KYC/CFT Policy
    • Anti-Money Laundering (AML): Implement robust AML policies to detect and prevent money laundering activities. This includes customer due diligence, ongoing monitoring of transactions, and reporting of suspicious activities.
    • Know Your Customer (KYC): Establish procedures to verify the identity of customers. This involves collecting personal information such as name, address, date of birth, and identification documents.
    • Countering the Financing of Terrorism (CFT): Develop measures to prevent the use of cryptocurrencies for financing terrorism. This includes risk assessments and monitoring for unusual or suspicious transactions.
  • Application Form: Complete the application form required by FINTRAC, detailing the nature of your business and its primary and secondary activities. Describe how and where these activities will be conducted. Provide a thorough description of your business model, including the types of services offered (e.g., trading, exchange, custody), target market, and operational procedures.
  • Memorandum and Articles of Association (MAA)
    • Legal Foundation: This document, prepared during company incorporation, outlines the company’s objectives, structure, and governance.
    • Charter Details: It includes information about the company’s name, registered office, share capital, and internal regulations.
  • Minute Book: The Minute Book serves as the official repository for all crucial corporate documents. It contains:
    • Minutes of shareholders’ and directors’ meetings
    • Articles of incorporation
    • Bylaws
    • Resolutions passed by directors and shareholders
    • Annual reports

Share Capital and Government Fees

  • Minimum Share Capital: There is no set for minimum share capital, however based on our experience we would recommend to register at least 10,000 CAD, to indicate serious intention during application process. (funds can be used for company purposes).
  • Government Fees: The costs associated with provincial incorporation vary based on the specific province or territory in which you choose to incorporate, our suggested provinces Ontario or Alberta government fee 300 CAD and 275 CAD respectively. FINTRAC does not charge registration fees, therefore no additional charges to register as MSB.

Personnel Requirements

  • Compliance Officer: Appoint a certified and dedicated local Compliance Officer with relevant background or experience in financial or blockchain fields. This person is responsible for ensuring the company complies with all regulatory requirements and oversees the implementation of AML/KYC/CFT policies.
  • Director: While there is no compulsory requirement to have a local director, having one is beneficial, especially if you plan to open a local Canadian bank account. The director should ideally have relevant experience and education in the financial or blockchain field to ensure effective oversight and governance.

Business premises requirements

  • FINTRAC requires the company to have a physical office in Canada. This office serves as the business’s registered address and primary place of business.
  • If the company does not plan to use an office space extensively, there are simplified options available, such as virtual offices or shared office spaces. Consulting with legal experts like those from Legalaes can provide more information on these options.

Roadmap of obtaining Crypto license in Canada

Obtaining a Crypto License or more specifically Money Services Business (MSB) license in Canada involves several stages, each requiring careful attention to detail and compliance with regulatory requirements set forth by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

For more detailed road map of the project and commercial offer – get in touch with our legal professionals.

Eriks Fijalovs

Head of Blockchain and Crypto

1

Gathering Documentation and Initial Project Analysis

The initial phase involves gathering all necessary documentation and conducting a detailed project analysis. This includes understanding the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to ensure compliance. Required documents include copies of passports and proof of address, such as utility bills or bank statements.

2

Registering an LTD Business in Canada

Clients provide 3-5 preferred company names, which are then verified and reserved. A detailed description of the business nature and model is prepared. Based on a signed application for incorporation, an LTD company is registered, and the share capital is determined and registered.

3

Registration with FINTRAC

A physical office is arranged with a rental agreement to meet MSB licensing requirements. A local Compliance Officer is appointed and registered within the company structure. A comprehensive compliance program, including AML/KYC/CFT policies, is developed. Employee training programs are implemented to ensure compliance with AML/CFT obligations. All necessary documentation, including business registration details and a description of activities, is prepared for submission to FINTRAC. The application is submitted, and the process continues until confirmation is received.

4

Provincial Registration

If operating in specific provinces like Ontario, local registration with the Ontario Business Registry or other relevant provincial bodies is completed. Local requirements are checked to ensure compliance with any additional provincial regulations for MSBs.

5

Corporate Bank Account Opening

Based on an analysis of the company’s business activities, the most suitable local banks or EMIs are identified. Necessary documentation from both the customer and company sides is prepared, potentially including additional documents required by banks. Preparation for an online interview with the bank manager is undertaken, with assistance provided throughout the process.

6

Implement Operational Requirements

Business processes are established, including systems for record-keeping, client identification, and transaction tracking to ensure compliance with the established compliance plan. Regular monitoring of transactions for suspicious activities is conducted, with mandatory reporting to FINTRAC. Periodic risk assessments are carried out to update compliance measures as necessary.

7

Operational launch

Operations begin within the Canadian regulatory framework. Continuous updates on legislative or regulatory changes affecting MSBs in Canada are provided. Engagement with industry groups or associations is encouraged to share best practices and stay informed on compliance issues. Ongoing support is available to enhance business operations, including local accounting services, agreements, policies, additional bank accounts, legal opinions, and more.

Types of Crypto licensing in Canada

There are two types of cryptocurrency licenses:

  1. Money Service Business (MSB)
  2. Foreign Money Service Business (FMSB)

The MSB license in Canada allows for the provision of virtual currency and financial services both domestically and internationally. In contrast, the FMSB license in Canada is tailored for foreign virtual currency or financial companies aiming to offer cryptocurrency and financial services within Canada’s market, potentially from outside the country.

MSB – Your business is Money Service Business if following criteria applicable:

Offering one or more of the following services:

  • Dealing with virtual currency
  • Foreign exchange dealing;
  • Remitting or transmitting funds;
  • Issuing or redeeming money orders, traveler’s cheques
  • Crowdfunding platform services

Place of business in Canada:

  • Incorporated in Canada
  • Physical location in Canada
  • Employees, agents or branches in Canada

FMSB – Your business is Foreign Money Service Business if ALL following criteria applicable:

  1. You are engaged in the business of providing at least one money services business (MSB) service;
  2. You do not have a place of business in Canada;
  3. You direct your MSB services at persons or entities in Canada
  4. You provide these services to clients in Canada
  5. Crowdfunding platform services

Detailed Time Frames to Obtain a Crypto License in Canada

The time frame to obtain a crypto license in Canada, specifically an MSB license for dealing in virtual currencies, can vary based on several factors including the completeness of the application, the nature of the business, and the responsiveness of the regulatory authorities. Here is an estimated timeline for the process:

1.  Preparation and Documentation

Time Frame: 2-3 weeks

2.  Submission of Application

Time Time: Immediate to 1 Week

Fill out the required forms and gather all necessary documents for submission to FINTRAC. Submit the application to FINTRAC either electronically or via mail.

3.  Review and Processing by FINTRAC

Time Time: 2-4 weeks

4.  Registration Confirmation

Time Frame: 2-5 days

If the application meets all regulatory requirements, FINTRAC will approve the registration.

The business will be issued an MSB registration number, confirming its status as a licensed Money Services Business.

Overall Estimated Time Frame – Approximately 2-3 months

Factors Affecting the Time Frame

It is important to note that obtaining a crypto license in Canada is a multi-step process that involves preparing comprehensive documentation, submitting a detailed application, and undergoing thorough regulatory review. The estimated time frame ranges from 2 to 3 months, depending on the specific nature of the business and the regulatory requirements involved. By ensuring thorough preparation and compliance, and enlisting the services of professionals like ourselves here at Legalaes, businesses can navigate the licensing process more efficiently.

Advantages of the Crypto license in Canada

Links for legislation related to Crypto business in Canada

FINTRAC serves as Canada’s financial intelligence unit, tasked with detecting and preventing money laundering and terrorism financing. It collects and analyzes financial transaction reports from regulated entities, including MSBs, to ensure compliance and safeguard the financial system.

This act sets the legal framework for combating money laundering and terrorist financing in Canada. It mandates MSBs to implement robust compliance programs, perform due diligence, and report suspicious transactions to help prevent financial crimes.

This registry is essential for business operating in Ontario, providing a platform for business registration, filing, and compliance. It ensures that all business entities, including MSBs, adhere to provincial regulations and maintain transparency in their operations.

The CRA is responsible for the administration of tax laws for the Government of Canada and for most provinces and territories. MSBs must comply with tax regulations, including reporting their earnings and paying taxes, as part of their operational requirements.

Canada Crypto license regulatory body - FINTRAC

Taxation of Cryptocurrency Companies in Canada

Taxation of cryptocurrency companies in Canada is a critical aspect of the regulatory framework, reflecting the government’s effort to integrate digital assets into the broader financial system while ensuring compliance with tax laws. Here are the key elements of how crypto companies are taxed in Canada:

1. Income Tax

1. Income Tax

  • Business Income: Cryptocurrency companies are taxed on their income like any other business. Income generated from activities such as trading, mining, or providing services related to cryptocurrencies must be reported as business income. Ontario general corporate income tax is 11.5%.
  • Revenue Recognition: Companies must recognize revenue from cryptocurrency transactions in Canadian dollars at the fair market value at the time of the transaction.
  • Deductions and Expenses: Business expenses incurred in earning income from cryptocurrency activities can be deducted. This includes costs related to technology, security, salaries, and other operational expenses.
2. Capital Gains Tax

2. Capital Gains Tax

  • Disposition of Assets: When a company disposes of cryptocurrency (e.g., sells, exchanges, or uses it for a transaction), any resulting gain is considered a capital gain and is subject to taxation. The gain is calculated as the difference between the fair market value at the time of disposition and the adjusted cost base.
  • 50% Inclusion Rate: Only 50% of the capital gain is included in taxable income, in line with Canada’s capital gains tax rules.
3. Goods and Services Tax/Harmonized Sales Tax (GST/HST)

3. Goods and Services Tax/Harmonized Sales Tax (GST/HST)

  • Taxable Supplies: Transactions involving the sale or exchange of cryptocurrency may be subject to GST/HST. Businesses must determine whether their transactions constitute taxable supplies.
  • Input Tax Credits (ITCs): Crypto companies can claim ITCs for GST/HST paid on business-related expenses, similar to other businesses.
4. Mining Operations

4. Mining Operations

  • Income Reporting: Income earned from mining cryptocurrencies is considered business income and must be reported. The value of the mined cryptocurrency is determined at the time it is successfully mined.
  • Deductible Expenses: Mining companies can deduct expenses related to mining operations, such as electricity, hardware, and maintenance costs.
5. International Transactions

5. International Transactions

Crypto companies engaged in international transactions must adhere to both Canadian tax laws and the tax regulations of the countries they operate in. This includes potential issues related to transfer pricing and withholding taxes on cross-border payments.

6. Tax Reporting and Compliance

6. Tax Reporting and Compliance

  • Record-Keeping: Companies must maintain detailed records of all cryptocurrency transactions, including dates, values, and counterparties, to ensure accurate tax reporting.
  • Annual Tax Returns: Crypto companies are required to file annual tax returns with the Canada Revenue Agency (CRA), reporting their income, expenses, and capital gains.
7. Special Considerations

7. Special Considerations

  • Foreign Property Reporting: Companies holding significant cryptocurrency assets outside of Canada may need to report these holdings to the CRA under the Foreign Income Verification Statement (Form T1135).
  • Taxable Benefits: If a company compensates employees or contractors with cryptocurrency, this must be reported as a taxable benefit, and the fair market value of the cryptocurrency must be included in the recipient’s income.
8. Regulatory Guidance and Updates

8. Regulatory Guidance and Updates

  • CRA Guidance: The CRA provides ongoing guidance on the taxation of cryptocurrencies to address new developments and clarify existing rules.
  • Adapting to Changes: Crypto companies must stay informed about changes in tax laws and regulations to ensure ongoing compliance and optimize their tax positions.

FAQ about Crypto license in Canada

1. Why do I need a crypto license in Canada?

A crypto license is required to legally operate a cryptocurrency business in Canada. It ensures compliance with regulations, enhances credibility, facilitates banking services, and attracts investors and customers.

2. What are the key requirements for obtaining a crypto license in Canada?

Key requirements include implementing AML/KYC protocols, register within FINTRAC, location of physical office in Canada, local compliance officer in the structure of the company, non-criminal record and demonstrate compliance with other relevant regulations. The specific requirements may vary depending on the type of license and jurisdiction within Canada.

3. How long does it take to obtain a crypto license in Canada?

The timeline for obtaining a crypto license in Canada varies depending on factors like the complexity of your business, the thoroughness of your application, and the specific regulatory body. It can take 2-3 months from application preparation to submission and approval.

4. What are the benefits of having a Canada crypto license?

The benefits include regulatory compliance, enhanced credibility, access to banking services, consumer protection, investor confidence, legal clarity, market access, reputation enhancement, risk mitigation, and facilitation of partnerships.

5. How to get crypto license in Canada?

Register legal entity within FINTRAC in Canada, prepare AML/KYC/CFT policies, register local compliance officer in structure of the company, have a physical office located in Canada, prepare and submit application.

<< 1 >>


EMI license in Lithuania 2024

Business activity: Payment institution, Digital bank

EMI license in Cyprus 2024

Business activity: Payment institution, Digital bank

MSB License in Canada 2024

Business activity: Payment institution, Digital bank