Quebec first province to regulate money-services industry

A recently passed bill that made Quebec the first province to regulate the money-services industry has elicited mixed reactions, drawing praise by some who see it as a blessing for legitimate small businesses catering to ethnic communities, unease by others who are concerned about the potential broad reach of the law, and baffled some legal observers who wonder why the provincial government appears to be duplicating an already existing federal law.

Touted as part of an offensive against money laundering and tax evasion schemes, the Money-Services Businesses Act (Act) introduces a licensing regime for money-services businesses that will be administered and enforced by the Autorité des marchés financiers (AMF), Quebec’s securities regulator.

Under the Act, entities or persons operating automated teller machines or offering such services as currency exchange, funds transfer, the issue or redemption of travelers’ cheques, money orders or bank drafts, or cheque cashing, must obtain a licence from the AMF. They must also disclose information about their directors, officers and associates as well as certain types of lenders they deal with.

The Act does not apply to entities, such as banks, already governed by other specified legislation. But it does apply to both Quebec-based money-services businesses and money-services businesses that are either not constituted under Quebec legislation or do not have their headquarters or establishment in the province but who offers services in Quebec, including money services through the Internet.

“This legislation is a blessing for legitimate small businesses,” remarked Terry Didus, a banking and finance lawyer with Heenan Blaikie in Montreal. “One of the consequences of being in the money-services business, and being unregulated, is that it is extremely difficult for those small businesses to get Canadian banks to agree to provide banking services. There will be more paperwork and reporting but it will make their life easier.”

Not all business share this view, particularly since the regulations are not yet finalized. Though the legislative process, from the introduction of Bill 128 to consultations to a detailed study by the National Assembly’s Committee on Public Finance to its adoption, took an astonishingly short period of time, a mere month, the regulations are only now being written by the AMF. “The devil is in the details,” said Martine Hébert, vice-president of the Canadian Federation of Independent Business(CFIB), Quebec. The CFIB is concerned that regulatory compliance may be far too burdensome and expensive for small business that simply host automated teller machines as a value-added service for their clients.

“Even if you subscribe to the objectives behind the law, it is how it is going to be done that is of concern to us,” said Hébert. “We’re worried about the regulations, and what will it do, what shape it will take and how it will affect our members.”

The scope of the regulations is also a source of preoccupation for Western Union Financial Services (Canada) Inc. Though not opposed to the new Act nor to its regulatory framework, Western Union is however keen on receiving more clarity, said Derek McMillan, the director of anti-money laundering compliance for Western Union Canada.

“There are a lot of things we don’t know yet,” said McMillan. “When the Act first came out, it seemed to suggest that identification on people transmitting funds would be required for every transaction. However, that is left to the regulation. That is one example of what it is that is going to be required.”

Western Union Canada, like others, are also worried about how the Act will mesh with the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act, given that it seems to cover the same ground. It remains to be seen whether the regulations the AMF will propose will streamline administrative and compliance requirements with the federal authorities, says Jaime Brown, Western Union Canada’s assistant general counsel. “There are some record-keeping and recording requirements in the Quebec Act that we’re not sure how they mesh with our federal obligations,” noted Brown. “We want to make sure that the discrepancies between the new legislation in Quebec and some of the federal compliance obligations are resolved.”

Alix d’Anglejan-Chatillon, a partner in the Montréal office of Stikeman Elliott LLP, believes that the regulations will need to underscore the differences between the two pieces of legislation because as it stands the Act is “problematic,” if only because “you’ve got two overlapping sets of rules” that are regulating the same industry. D’Anglejan-Chatillon suspects that the Quebec government moved at lightning speed to adopt the law in order to assert its jurisdiction.

“The underlying impetus for passing the legislation so quickly is perhaps the political desire to be seen as really combating tax evasion and money laundering at a provincial level,” said d’Anglejan-Chatillon, who practices principally in the areas of investment management, the regulation of capital markets and derivatives.

That is something that worries John Teolis, a partner in the Financial Services Group with Blake, Cassels & Graydon LLP. Noting that regulation is “very costly,” Teolis wonders whether Quebec’s efforts to regulate the money-services industry will be emulated by other provinces and lead to a situation “like our securities legislation where we have provinces occupying the field and requiring one to deal with individual provinces as opposed to the federal government.”

Teolis is also uncomfortable over the reach and scope of the AMF’s powers. The Act, he points out, has provisions that provide and allow for sharing of information between the AMF, the Quebec tax department and law enforcement agencies, particularly with respect to licensing decisions. Indeed, the Act gives the provincial police force the power to issue security clearance reports which the AMF will use to decide whether or not to issue a licence.

“It’s very broad,” said Teolis. “You always worry when agencies have very, very  strong investigative powers, and what they do with that information. So there is some concern.”

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