How to Build a Funds-Flow Diagram for FINTRAC Scope Review

The most useful first artifact in a money services business scope review is a funds-flow diagram: a single picture of who sends value, who receives it, where it rests along the way, and who can move it. The MSB question for a payments business turns largely on whether it transfers funds — the registerable activity under PCMLTFA s. 5(h)(ii), and s. 5(h.1)(ii) for foreign businesses directing services at people in Canada — and that question cannot be answered from a product description or a pitch deck.

Build the diagram before writing any analysis. A scope memo drafted first tends to describe the business the way the founders describe it; a diagram drawn first forces the review to confront where funds actually sit and who actually controls each movement. The conclusion should be the last thing written, not the first.

Put every participant on the page: the payer, the payee, each party's bank, the acquirer, the PSP or platform under review, and every settlement account in the chain. For each account, record three things — who holds the funds, whose name the account is in, and who has authority to initiate movement out of it. If virtual currency is involved, map wallets and custody the same way.

Show timing as well as direction. A platform whose customers pay the acquirer directly, with settlement flowing straight to the merchant, sits in a different position from a payroll platform that briefly holds employer funds in its own account before paying employees out. Even a short hold in an account the business controls is a fact the diagram must show, because it changes what the scope analysis has to grapple with.

Do not stop at the happy path. Refunds, chargebacks, reversals, and failed-payment recoveries all move funds again, sometimes through different accounts than the forward flow. A diagram that omits them is incomplete in exactly the places examiners and counsel tend to probe.

Every arrow and every account on the diagram should be verifiable against a contract. The agreements with merchants, acquirers, processors, and banks carry the terms that define funds-flow and control — and those terms sometimes contradict how the product is marketed.

Read the settlement and payout clauses first: whose account do funds land in, on what schedule, and who instructs the payout? Then account-ownership and designation clauses — for-benefit-of, trust, or client-money language changes who holds funds even when the account bears the platform's name. Then payment-initiation authority: who is contractually entitled to move money, and on whose instruction? Finally, liability and reversal clauses, which reveal who bears the risk of funds in flight and often expose holds or control the product diagram missed.

Where a contract clause and the product description disagree, the contract wins for scope purposes. Annotate each hop on the diagram with the agreement and clause it comes from, so the diagram is evidence-backed rather than assumed.

With the diagram drawn and contract-checked, apply the definitions to it. For each hop, ask: does the business remit or transmit funds at someone's instruction? Does value rest in an account it controls? The definitions in PCMLTFR s. 1(2) and the registerable activities in PCMLTFA s. 5(h) are applied to what the diagram shows — a business that never touches or directs funds looks very different on paper from one that intermediates settlement, even if both call themselves payment platforms.

Be careful with older material. FINTRAC withdrew its earlier merchant-processing policy positions (PI-7670) effective April 27, 2022, with a follow-up notice on July 21, 2022. Interpretation letters that once carved payment processing out of MSB scope are historical context only; the analysis should run against the current FINTRAC guidance and the statutory definitions themselves. If the diagram shows the business transferring funds, registration under PCMLTFA s. 11.1 becomes the follow-on question.

Keep the diagram as a dated, versioned document alongside the scope memo that reasons from it, with the contract references supporting each assertion. When FINTRAC or a banking partner asks how the business reached its scope position, a diagram-plus-contracts package shows the reasoning was grounded in facts rather than in the product's self-description.

Revisit it on change, not on a calendar. A new settlement account, a switch from direct acquirer payout to platform-intermediated payout, a renegotiated processor agreement — any of these can move the business across the line in either direction. The diagram is only as good as its last update.