Payment services and crowdfunding services are now regulated under Canada's anti-money laundering framework

9 GERMAN minute read
09 Mai 2022

On April 5, 2022, changes affecting the Canada's anti-money laundering legislation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000 c 17 (the "PCMLTFA"), were published in the Gazette.



These changes, which were initially an emergency response to the protest convoys occupying major Canadian urban areas, are now permanently in force, modifying important aspects of the PCMLTFA's main regulation, SOR/2002-184. These changes will likely have significant implications for services offering crowdfunding, payment processing, as well as existing money services businesses ("MSB").

A summary of the changes made in the Regulation is available below, but as a brief overview:

  • Crowdfunding platforms and services (the maintenance and use of website and/or software to raise funds or virtual currency) are now expressly regulated under the PCMLTFA as MSBs, and are subject to the same reporting and verification requirements.
  • Certain payment service providers facilitating electronic funds transfers will also now be considered MSBs and subject to reporting and verification requirements.
  • Existing MSBs and foreign money service businesses ("FMSB") may see the scope of reportable activity expand, as the definition of "electronic funds transfers" now includes transactions carried out by credit/debit cards where there is an agreement by the recipient of the funds with a payment services provider.
  • The Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations (SOR/2007-292) has been amended to add a new monetary penalty relating to record keeping by crowdfunding platforms and arising from crowdfunding platform services.

Impacted crowdfunding platforms, entities offering crowdfunding platform services, and certain payment service providers, are now required to ensure that they take the requisite steps to be in compliance with the PCMLTFA, including:

  • Registering as an MSB with the Financial Transactions and Reports Analysis Centre of Canada ("FINTRAC"), which regulator charged principally with enforcing the PCMLTFA;
  • Developing and maintaining a compliance program;
  • Carrying out know-your-client and know-your-business verifications where required to do so;
  • Maintaining records, including records relating to identification and transactions; and
  • Reporting suspicious transactions to FINTRAC.

FINTRAC has already published commentary to assist businesses with assessing whether they are impacted by these new amendments. FINTRAC has also retracted past commentary which is in conflict with the updated Regulation (for instance, PI-7670). We anticipate further commentary will be forthcoming from FINTRAC, and existing commentary will continue to be revised. However, businesses which are impacted by this expansion of the PCMLTFA's scope should consider themselves governed by the PCMLTFA, and be proactive in ensuring they are compliant with its requirements.

Should you have questions about whether your business is impacted by these changes, you can contact the authors or a member of our Financial Services Regulation Group.

Table of changes

Updated sections Summary of change

1(2) Definitions

"electronic funds transfer"

The definition of "electronic funds transfer" no longer exempts payments made by credit/debit cards where the beneficiary (recipient of funds) has an agreement with a payment service provider permitting that type of payment for goods and services.

1(2) Definitions

"crowdfunding platform"

"crowdfunding platform services"

Definitions added.

"Crowdfunding platforms" - websites or software used to collect donations through virtual or fiat currency.

"Crowdfunding platform services" - the offering of a crowdfunding platform for use by others for fundraising for themselves or specified beneficiaries.

29.1

MSB and FMSB – Reporting Obligations

Crowdfunding platforms and entities providing crowdfunding platform services are now considered to be MSBs (or FMSBs), and regulated under the PCMLTFA.

36.1

Obligations of a MSB in connection to crowdfunding platform services provided in Canada

MSBs which are providing a crowdfunding platform service are now obligated to (a) keep an information record of persons/entities to whom they provide those services; (b) keep a record of the purpose for which those funds are raised; and (c) identify any beneficiary if the funds are being raised for someone other than the person using the service.

95(1); 95(3); 95(4)

MSB and FMSB – Verification Obligations

MSBs are now required to verify the identity of a person, corporation, or other entity to whom they provide a crowdfunding platform service, or a person, corporation, or other entity who donates $1,000 or more in fiat or virtual funds through that crowdfunding platform.

105(7); 109(4)(g); 112(3)

MSB and FMSB – Events Triggering Verification

MSBs are now obligated to verify identification when they create an information record about a person to whom they provide a crowdfunding platform service; and/or when a donation of $1,000 or more in fiat or virtual currency is made on its crowdfunding platform.

MSBs must verify the identity of a corporation or entity other than a corporation, within 30 days of, among other events, receiving a donation from one on its crowdfunding platform.

124

Electronic Funds Transfers

Electronic funds transfers which are transmitted through SWIFT MT-103 messages (or equivalent), or international transfers by credit/debit card or prepaid payment products where the beneficiary has an agreement with payment service providers for goods and services should include name, address and account number or other reference number, if any, of the person or entity that requested it, and any prescribed information.

Note: this does not presently apply to financial entities or casinos.

150.1

Electronic Funds Transfers by Credit or Debit Card or Prepaid Payment Product

This section has been added into the Regulation, and expressly exempts the application of certain provisions (enumerated below) where funds are electronically transferred by means of a credit/debit card or prepaid payment product if the beneficiary has an agreement with payment service providers for goods and services.

Exempted provisions: 7(1)(b) and (c), 12(o) to (q), 13(f) and (g), 14(1)(h) and (i), 70(1)(b) and (c) and 74(2)(c) to (e), clauses 86(a)(iii)(B) and (F), subparagraphs 116(1)(b)(i) and (ii) and paragraphs 120.2(3)(a) and (b)


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