On October 11, 2023, the government of Canada released the final version of three regulations that amend Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) regime, as published in the Canada Gazette Part II Volume 157, Number 21.
Among other things, these amendments (the Amendments) bring more entities within the purview of the PCMLTFA and impose anti-money laundering (AML) and anti-terrorist financing (ATF) compliance obligations, as regulated by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
Two regulations, SOR/2023‑193 and SOR/2023‑194, amend existing regulations under the PCMLTFA, and a new regulation, SOR/2023‑195 was made under the PCMLTFA, which is entitled the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations.
The Amendments affect the following sectors:
- Mortgage Sector: As of October 2024, businesses and professionals involved in the mortgage sector, specifically mortgage administrators, brokers and lenders, will have AML/ATF obligations. FINTRAC describes the compliance obligations in its sector-specific guidance for mortgage administrators, brokers and lenders.
- Correspondent Banking: Starting in October 2024, financial entities entering into a correspondent banking relationship will have additional AML/ATF requirements.
- Armoured Car Currency Transport: As of July 2024, businesses transporting currency and negotiable instruments will have AML/ATF obligations. FINTRAC describes the compliance obligations in its sector-specific guidance for armoured cars.
The Amendments also implement a new funding model for FINTRAC's operations.
Mortgage Sector: Key takeaways
For many years, there have been calls for Canada to align with international standards set by the Financial Action Task Force (FATF) and bring the mortgage sector within FINTRAC's regulatory ambit.
There has also been growth in recent years of mortgages issued by entities that were not regulated under the PCMLTFA. The Amendments affecting mortgage sector participants, which are contained in SOR/2023-194, have the effect of bringing Canada in line with these international standards, addressing the growing risks in this area and creating a level playing field among participants in the sector.
The new obligations applicable to the mortgage sector will be implemented by October 2024 when the relevant Amendments come into force.
The Amendments capture the following stakeholders in Canada's mortgage sector:
- Mortgage administrators: Defined as a person or entity, other than certain financial institutions or Crown agencies, that is engaged in the business of servicing mortgage agreements on real property or hypothec agreements on immovables on behalf of a lender.
- Mortgage brokers: Defined as a person or entity that is authorized under provincial legislation to act as an intermediary between a lender and a borrower with respect to loans secured by mortgages on real property or hypothecs on immovables.
- Mortgage lenders: Defined as a person or entity, other than certain financial institutions or Crown agencies, that is engaged in the business of providing loans secured by mortgages on real property or hypothecs on immovables.
Under the Amendments, these mortgage sector participants will be required to develop an AML/ATF compliance program, apply customer due diligence measures, keep certain records, report certain transactions to FINTRAC and follow ministerial directives and transaction restrictions.
Correspondent Banking: Key takeaways
The Amendments applicable to correspondent banking relationships are also aimed at bringing the obligations under the PCMLTFA in line with international AML/ATF standards. The Amendments applicable to correspondent banking relationships, which are contained in SOR/2023‑194, will apply to "financial entities" under the PCMLTFA, which includes certain financial institutions and Crown agencies.
In addition to existing obligations, financial entities engaged in correspondent banking relationships will be required to:
- Conduct and document a risk assessment of each correspondent banking relationship, and keep this risk assessment up to date.
- Conduct additional due diligence measures based on publicly available information and keep records assessing the foreign financial institution's clientele and markets served, AML/ATF risk reputation, and the AML/ATF supervision in the jurisdictions in which it operates.
- Conduct ongoing monitoring of the correspondent banking relationship according to the risks posed.
Both FATF and the Bank of International Settlements pay particular attention to correspondent banking relationships, which are vulnerable to misuse for money laundering and terrorist financing due to their international nature. The Amendments will require Canadian financial institutions to manage the evolving risks of correspondent banking relationships while preserving these important networks, which ultimately promote global financial inclusion by providing financial services to foreign financial entities.
The new obligations applicable to correspondent banking relationships will be implemented by October 2024 when the relevant Amendments come into force. We expect FINTRAC to release additional guidance on correspondent banking relationships prior to the in force date of these Amendments.
Armoured Car Currency Transport: Key takeaways
Armoured car businesses were first brought into scope of the PCMLTFA as part of the Budget Implementation Act, 2021, No. 1 (BIA1 2021), but the prescribed requirements for the relevant compliance programs, due diligence measures, record keeping and reporting obligations for armoured car businesses had not been introduced until the Amendments were published.
The new obligations for armoured cars, which are set out in SOR/2023‑193, will be implemented by July 2024 when the relevant Amendments come into force.
Under the Amendments, armoured car businesses will be a subset of money services businesses, and are defined as follows:
"Persons and entities … transporting currency or money orders, traveller's cheques or other similar negotiable instruments except for cheques payable to a named person or entity."
The armoured car sector poses a high inherent risk of money laundering and terrorist financing due to many of their clients being cash intensive and the complexity of the services offered. Under the Amendments, armoured car businesses will be required to:
- Develop an AML/ATF compliance program.
- Apply customer due diligence measures.
- Keep certain records.
- Report certain transactions to FINTRAC.
- Follow ministerial directives and transaction restrictions.
New FINTRAC Funding Model: Key takeaways
As part of the Amendments, FINTRAC will implement a new funding model for its operations. Beginning on April 1, 2024, FINTRAC will charge the following reporting entities for the annual cost of its compliance program:
- Federally regulated banks, trust and loan companies, and life insurance companies.
- Other reporting entities that submit 500 or more threshold transaction reports during the fiscal year.
To date, FINTRAC has been funded through appropriations. The Amendments prescribe a formula for FINTRAC to assess the expenses it incurs in the administration of the PCMLTFA against reporting entities that are sizeable enough to absorb these costs collectively. The apportionment formula for each contributing entity is designed to be proportional, adjusting the entity's contribution according to the value of the entity's assets in Canada, among other factors.
This cost recovery regime is specified in the new Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations made under the PCMLTFA. Generally, this change aligns FINTRAC with approach of other federal regulators that recover their costs from their regulated entities, in particular the Office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada.
This change also began in BIA1 2021, but the new FINTRAC cost recovery regime was not in force pending the present Amendments, which prescribe the entities that are subject to the new cost recovery and assessment regime and set out the parameters for the assessment regime.
Learn more about AML/ATF requirements
At Gowling WLG, we are committed to monitoring legislative and regulatory developments by industry sector. Our insurance regulatory professionals would be pleased to assist stakeholders in the consultation process.
For any questions you may have about AML/ATF requirements in Canada, the authors or members of our Financial Services Regulation and White Collar Defence and Investigations Practice Groups would be pleased to assist.