Financial regulators expanding their reach

Financial Stability Board (FSB), Autorité des marchés financiers (AMF), Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) issue guidance and consultations for banks, credit unions, financial intermediaries and other market participants.

13 May 2020

Despite the challenges to the global economy and significant pressures on the financial sector, Canada's financial regulators continue their regulatory work that has not been impacted by COVID-19 considerations by forging ahead with consultations and expanding their regulatory reach.

Banks and Lending

  1. The FSB provides guidance that will assist central counterparty (CCP) resolution authorities

On May 4, 2020, the FSB published guidance designed to ensure that CCPs do not themselves become a source of systemic risk. It is composed of two parts:

  • Part I of the guidance proposes five steps to guide the authorities in assessing the adequacy of a CCP's financial resources and the potential financial stability implications of their use.
  • Part II of the guidance addresses the treatment of CCP equity in resolution. It provides a framework for resolution authorities to evaluate the exposure of CCP equity to losses in recovery, liquidation and resolution and how (where it is possible) the treatment of CCP equity in resolution could be adjusted.

The FSB is inviting comments on this consultation report. Responses should be sent to fsb@fsb.org with "CCP consultation" in the subject line by July 31, 2020.

  1. The AMF takes on regulation of the mortgage broker sector

On May 1, 2020, the provisions of Bill 141 pertaining to the transfer of supervision of the mortgage brokerage sector to the AMF came into force.

As described in the notice of the AMF, as of May 1, 2020, real estate brokers will need a mortgage broker certificate issued under the Act respecting the distribution of financial products and services in order to purse activities as mortgage brokers and, among other things, receive remuneration that is contingent on the making of a mortgage loan, including in the case of referrals to lenders.

AML and Money services businesses (MSB)

  1. Foreign MSBs and virtual currency dealers subject to Canadian AML regime on June 1, 2020

This is a reminder that, on June 1, 2020, amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations will come into effect. These amendments introduce a number of changes to Canada's anti-money laundering and terrorist financing legislation, including the addition of registration and compliance obligations for foreign money services businesses ("FMSBs") and virtual currency dealers.[1]

As of June 1, 2020, FMSBs will be required to register with the FINTRAC and will have the following additional obligations:

  • Designate a representative for service that resides in Canada and is authorized to accept, on behalf of the FMSB, FINTRAC related notices and inquiries;
  • Report certain financial transactions to FINTRAC;
  • Keep certain records;
  • Identify clients; and
  • Have a compliance program in place.

FMSBs are currently able to voluntarily register with FINTRAC ahead of the June 1, 2020 deadline by using the pre-registration form.

Gowling WLG's Financial Regulatory team is available to act as the representative of FMSBs in Canada (including, virtual currency dealers that are FMSBs) and to help them understand and comply with their obligations pursuant to Canadian anti-money laundering laws.

  1. Update to Suspicious Transaction Reporting Guidance Effective June 1, 2020

On June 1, 2020, updated guidance on suspicious transaction reports ("STRs") comes into effect for all FINTRAC reporting entities and individuals employed by such entities.

This guidance document answers the following questions:

  • What is a STR?
  • What measures to take to enable a submission of STRs to FINTRAC?
  • What are reasonable grounds to suspect ("RGS")?
  • When to submit an STR to FINTRAC?
  • How does FINTRAC assess compliance with the obligation to submit STRs?
  • How to assess one's own compliance with the obligation to submit STRs?

This updated guidance should be read in conjunction with the two other suspicious transaction reporting guidance documents:

Canadian Council of Insurance Regulators and Canadian Insurance Services Regulatory Organizations

  1. Launch of Fintech/Insurtech Advisory Hub

On May 7, 2020, the Canadian Council of Insurance Regulators ("CCIR") and the Canadian Insurance Services Regulatory Organizations ("CISRO") published a notice announcing the launch of the CCIR-CISRO Fintech/Insurtech Advisory Hub (the "Advisory Hub").

  • The Advisory Hub is a portal where fintechs or other businesses seeking to go-to-market with a new insurance product or service can obtain information about the regulatory requirements that they must meet to do so in one or more jurisdictions across Canada.
  • To use the Advisory Hub, an interested entity should visit its webpage and be prepared to provide: (i) a list of the provinces and/or territories where it would like to conduct business in Canada; (ii) whether it is registered or licenced to carry on any insurance business in Canada, or outside of Canada; and (iii) a description of its product or service. The Advisory Hub will then connect the interested entity with the applicable regulators.
  • The Advisory Hub will not offer pre-market testing, exemptive relief from regulatory/licensing requirements, financial support, or binding advice.

Conclusion

If you have any questions as to how these regulatory changes may impact your organization's obligations, please contact your Gowling WLG professional. Our Financial Services Regulatory Team at Gowling WLG will continue to keep you informed as further developments arise.

For other COVID-19 related resources, please visit our resource page with information to help clients manage their business during the pandemic. The page contains critical information to guide you through various complex legal issues, as well as a list of key contacts who can provide advice on these issues.


[1] A person or entity is a FMSB if it does not have a place of business in Canada, and is engaged in the business of providing any of the following services to Canadian customers: (i) foreign exchange dealing, (ii) remitting funds or transmitting funds (iii) issuing or redeeming money orders, traveller's cheques or other similar instruments except for cheques; or (iv) dealing in virtual currencies.


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