A passing grade with homework: Canada's 2026 FATF mutual evaluation

On September 29, 2026, the Financial Action Task Force (FATF) and the Asia-Pacific Group on Money Laundering (APG) published the Mutual Evaluation Report of Canada (the Report). The Report assesses Canada’s anti-money laundering, countering the financing of terrorism, and countering proliferation financing (AML/CFT/CPF) system and its compliance with the FATF Recommendations. While the Report recognizes Canada’s progress since its 2016 mutual evaluation, it identifies several areas for improvement, including strengthening risk-based supervision and enforcement for financial institutions, virtual asset service providers (VASPs), and designated non-financial businesses and professions (DNFBPs). It recommends establishing a pan-Canadian beneficial ownership framework, increasing money laundering prosecutions and convictions, and expanding asset recovery tools.

The FATF mutual evaluation process

The FATF sets the global standards for combating money laundering, terrorist financing, and proliferation financing through its recommendations (the Recommendations), which serve as a common framework for countries to address these threats. It assesses countries' implementation of the Recommendations through mutual evaluations, which are peer reviews conducted by other FATF members.

Canada's latest mutual evaluation was conducted under the methodology updated in 2022, which places greater emphasis on risk and the effectiveness of a country's AML/CFT/CPF system rather than on technical compliance alone. Notably, Canada’s previous mutual evaluation, published in 2016 (the 2016 Report), was conducted under the earlier methodology adopted in 2013.

The FATF assesses countries in two ways:

1. Technical compliance. This assessment considers whether a country has the laws, institutions, and powers required by the Recommendations. There are four possible levels of compliance: compliant (no shortcomings), largely compliant (only minor shortcomings), partially compliant (moderate shortcomings), and non-compliant (major shortcomings).
2. Effectiveness. This assessment measures how well a country’s AML/CFT/CPF system works in practice. It is assessed against 11 “Immediate Outcomes”, each describing a key goal that an effective system should achieve. There are four possible effectiveness ratings: high, substantial, moderate, and low. For instance, a substantial rating means the FATF found that the outcome was achieved to a large extent and requires only moderate improvements, while a moderate rating means the outcome was achieved only to some extent and needs major improvements.

Together, these assessments provide a comprehensive view of a country's compliance and the strength of its AML/CFT/CPF system.

Key takeaways from the Report

Overall, Canada received a passing grade. On effectiveness, Canada received substantial ratings on six of the 11 Immediate Outcomes, and moderate on the other five, with no low ratings. On technical compliance, Canada received no non-compliant ratings and was rated partially compliant on four Recommendations relating to confiscation and provisional measures, transparency and beneficial ownership of legal persons, regulation and supervision of financial institutions, and regulation and supervision of DNFBPs. This marks a significant improvement from the 2016 Report, which rated Canada non-compliant on five Recommendations and partially compliant on six.

These ratings place Canada in the FATF’s regular follow-up process rather than enhanced follow-up. Canada also stayed off the FATF's "grey list", a possibility some industry experts had raised following recent AML enforcement actions against major Canadian financial institutions. Grey-listing or blacklisting can carry serious economic consequences, including curtailed foreign investment.

A. Areas of strength

• Risk understanding and co-ordination. Canada has a “mature and nuanced understanding” of its money laundering and terrorist financing threats, developed through successive National Risk Assessments, and a strong multi-layered inter-agency co-ordination framework.
• Financial intelligence. Canada effectively develops and uses financial intelligence. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) produces high-quality operational and strategic intelligence that supports investigations into fraud, drug trafficking, and other high-risk offences, and its involvement in joint operational structures and public-private partnerships exemplifies best practices.
• Corporate transparency. Canada has “considerably advanced” its transparency and beneficial ownership framework since 2016, including introducing corporate beneficial ownership registers at the federal level and in Québec.
• Terrorist financing, sanctions and international co-operation. Canada was rated substantial for international co-operation, terrorist financing investigations, terrorist financing preventive measures, and proliferation financing sanctions.
• Investigative capacity and cryptocurrency seizures. Canada’s well-co-ordinated and well-resourced law enforcement agencies identify and investigate money laundering largely in line with the country’s risk profile. The FATF also recognized Canada’s “sophisticated capability” in seizing cryptocurrency.

B. Areas requiring improvement

• Money laundering prosecutions. The Report criticizes the effectiveness of money laundering prosecutions in Canada, particularly for the most serious laundering proceeds of crime offence. The rate of successful prosecutions in Canada for money laundering is low. This is largely attributed to prosecutors frequently withdrawing money laundering charges in favour of securing convictions on predicate offences, which carry higher penalties, undermining the deterrent effect intended by money laundering laws. The FATF also notes ongoing challenges in prosecuting professional money laundering and inconsistent sentencing.
• Supervision of financial institutions and virtual asset service providers. While the FATF rated Canada’s supervision of financial institutions and VASPs as moderate, it rated Canada’s regulation and supervision of financial institutions’ AML/CFT/CPF compliance as only partially compliant. It found that a significant proportion of financial institutions and VASPs do not undergo necessary risk assessments and that supervisory actions are inadequate in frequency and intensity. Many institutions also showed deficiencies in suspicious transaction reporting, and the FATF criticized FINTRAC's enforcement actions as limited.
• Non-financial sectors. Supervision of DNFBPs concentrates on higher-risk entities, such as casinos, so coverage and enforcement remain limited in highly vulnerable sectors, notably real estate and dealers in precious metals and stones (DPMS). DPMS also have no licensing or registration framework, and lawyers remain outside the federal AML regime.
• Beneficial ownership across provinces and territories. Canada’s multi-pronged approach generally provides timely access to beneficial ownership information, but uneven provincial and territorial implementation, including the limited establishment of central registries and inconsistent verification and sanctions, reduces the effectiveness of this approach. The FATF specifically recommends a pan-Canadian corporate beneficial ownership framework, “with a priority on Ontario and Alberta”.
• Asset recovery and international co-operation.Canada recovers criminal proceeds only "to some extent", and inconsistent restraint of intermingled assets, very limited use of value-based confiscation, and uneven civil forfeiture across provinces hold back results. Internationally, Canada provides good-quality mutual legal assistance, but persistent delays and low execution rates on foreign freezing and confiscation requests mean few assets are recovered through co-operation.

Practical implications and looking ahead

The Report’s “key recommended actions” will guide Canada’s follow-up efforts. These include strengthening risk-based supervision and enforcement for financial institutions, VASPs, and DNFBPs, implementing a pan-Canadian beneficial ownership framework, increasing money laundering prosecutions and convictions, and expanding asset recovery tools.

Canada must report its progress to the FATF within three years. The federal government has committed to reviewing and acting on the key recommended actions, while FINTRAC has indicated that it will continue expanding its supervisory and enforcement activities.

As a result, financial institutions should expect more detailed risk assessments, closer scrutiny of suspicious transaction reporting, and potential sanctions. High-risk sectors, including VASPs and DNFBPs, will face increased supervision and possible licensing regimes. Corporations should prepare for expanded beneficial ownership requirements, and all reporting entities should review their compliance programs in light of the Report's findings and a stricter enforcement landscape.

For more information about the topics discussed in this bulletin or related matters, please contact a member of our Financial Services or Compliance teams for assistance.