Amendments to AML Legislation Regulations - New Funding Model and Expansion of Scope to Mortgage Lending and Armoured Car Sectors
On October 11, 2023, the federal government published final Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “PCMLTFA Regulation Amendments”) (further to draft amendments published earlier this year), together with new Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations.
New Funding Model
The Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) is introducing a new funding model starting April 1, 2024, pursuant to which FINTRAC will charge certain reporting entities (namely federally regulated banks, trust and loan companies, and life insurance companies and other reporting entities that submit 500 or more threshold transaction reports during the fiscal year) instead of taxpayers for the annual cost of its compliance program.
FINTRAC has issued guidance on charging reporting entities for FINTRAC’s compliance program and more specifically, guidance detailed the components of the method for charging reporting entities. The amount charged to applicable reporting entities will be (i) a fixed base amount based on the value of the reporting entity’s Canadian assets at the end of the financial year plus (ii) the “remaining compliance cost” being the cost of FINTRAC’s compliance program less the sum of all base amounts. Reporting entities that submit 500 or more threshold transaction reports during the fiscal year will be charged an amount based on the annual volume of threshold transaction reports.
Final versions of draft amendments to regulations introduced earlier this year expanding the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”) to mortgage lenders, mortgage brokers and mortgage administrators have been issued, with the applicable requirements applying as of October 11, 2024. FINTRAC has also issued guidance for mortgage administrators, brokers and lenders. In sum, these entities will be required to implement an anti-money laundering (“AML”) compliance program, which will include know-your-client, record-keeping and reporting requirements.
Record-keeping requirements for mortgage entities will include the following:
- receipt of funds records when the mortgage entity receives any amount in connection with a mortgage on real property or a hypothec on immovable;
- information records in the following circumstances: in the case of a mortgage administrator, when they service a mortgage agreement; in the case of a mortgage broker, when they arrange a mortgage loan; in the case of a mortgage lender, when they provide a mortgage loan or when they raise funds for a mortgage loan; and
- mortgage loan records, which include: the financial capacity of the client; the terms of the loan; the nature of the client’s principal business or their occupation, and the name and address of their business or place of work if the client is a person.
Similarly, the PCMLTFA Regulation Amendments will require armoured cars businesses that engage in transporting currency, money orders, traveller’s cheques, or other negotiable instruments to comply with the requirements applicable to money services businesses under the PCMLTFA, including registering as a money services business, as of July 1, 2024. FINTRAC has issued guidance for armoured cars businesses.
The PCMLTFA Regulation Amendments will require financial entities entering into correspondent banking relationships to comply with additional requirements starting October 11, 2024 once the PCMLTFA Regulation Amendments come into force, namely:
- conducting and documenting a risk assessment of their correspondent banking relationship (which will need to be kept up to date);
- conducting additional due diligence of any correspondent financial institution, focusing on (i) the nature of the correspondent financial institution’s clientele and markets, (ii) the reputation of the correspondent financial institution with respect to AML requirements; and (iii) the quality of AML supervision in its home jurisdiction; and
- conducting on-going risk-based monitoring of the correspondent banking relationship.
FINTRAC is also engaging in a process of modernizing its reporting forms, including the Large Virtual Currency Transaction Report (LVCTR), the Large Cash Transaction Report (LCTR), the Suspicious Transaction Report (STR), the Electronic Funds Transfer Report (EFTR) and the Casino Disbursement Report (CDR). Further information on FINTRAC’s schedule and milestones to update these form is available on the FINTRAC site.