FINTRAC issues new guidance on armoured cars, the mortgage sector, and the new expenses funding model
To enhance Canada’s anti-money laundering and anti-terrorism financing (“AML/TF”) regime, the Department of Finance has introduced updates to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (“PCMLTF Regulations”), as well as the regulatory mandate and operations of the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”). We discussed these initiatives in our previous article.
On October 11, 2023, the Department of Finance released a final publication of the proposed amendments to the PCMLTF Regulations in the Canada Gazette. On October 12, 2023, FINTRAC then published new guidance on upcoming changes impacting Reporting Entities. The new guidance provides information on FINTRAC’s interpretation of the recent amendments.
This article will summarize FINTRAC’s new guidance. Specifically, we provide an overview of the new guidance as it relates to FINTRAC’s new funding model, as well as the implementation of new AML/TF obligations for armored cars and the mortgage sector.
Expense funding model
Beginning on April 1, 2024, FINTRAC will finance its compliance monitoring program by charging an annual cost to:
- federally regulated banks, trust and loan, and insurance companies; and
- other reporting entities that submit 500 or more threshold transaction reports (transactions of $10,000 or more) during the fiscal year.
The annual cost will be determined based on a formula whereby the amount charged to the Reporting Entity will vary based on, the type of entity, the value of Canadian assets it holds, the total actual cost of FINTRAC’s compliance program, and the number of reported threshold transactions.
Previously, FINTRAC’s compliance monitoring program was entirely financed by the federal government. Under the new expense funding model the burden of regulating financial transactions in Canada will shift from the taxpayer, to those entities which are the subject of the monitoring program.
The new funding model is expected to come into effect in April of 2024. Affected Reporting Entities should therefore anticipate an increased cost associated with compliance under the PCMLTF Regulations.
As a result of the recent amendments to the PCMLTF Regulations, businesses that transport currency, money orders, traveler’s cheques, or negotiable instruments (i.e. armoured cars), will be subject to various regulatory requirements that are applicable to money services businesses (“MSB”).
MSBs are required to adhere to a number of requirements including, registering with FINTRAC, implementing a compliance program, reporting transactions, record keeping, and conducting client identification and verification.
Other jurisdictions like the United States have long maintained regulations imposing requirements on armoured cars. For example, certain armoured car businesses are considered to be MSBs under US law, and are thus required to register with the Financial Crimes Enforcement Network the American counterpart to FINTRAC.
The regulations that apply to armoured vehicles are set to come into force on July 1, 2024.
The mortgage sector
In addition, the updated PCMLTF Regulations have expanded to include mortgage administrators, mortgage brokers, and mortgage lenders. These requirements are not in addition to any regulatory obligations already imposed upon traditional institutional financial entities (such as banks), but are intended to regulate mortgage administrators, brokers, and lenders who are not already subject to the requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTF Act”).
Individuals or entities engaged in mortgage lending will be subject to a number of requirements, similar to those of a MSB (with the exception of registering with FINTRAC).
The Financial Action Task Force (“FAFT”), an intergovernmental organization founded to develop policies to combat money laundering and terrorist financing, has long recommended that all mortgage lenders should comply with AML/TF requirements, given that real estate investment is an attractive way to integrate illicit funds into the financial system.
Further, the Final Report by the Commission of Inquiry into Money Laundering in British Columbia (the “Cullen Report”) which was published on June 15, 2022, also recommended that all mortgage brokers be subject to the PCMLTF Act. The Amendments to the PCMLTF Regulations brings all entities involved in the mortgage lending process within the scope of the AML/TF regime. The regulations that apply to the mortgage lending sector are set to come into force on October 11, 2024.
Additional upcoming changes
FINTRAC also anticipates it will update and issue new guidance related to correspondent banking obligations as it looks to modernize its reporting forms and procedures.For further information on how the implementation of these amendments may impact your business, please speak with a member of our team.