On February 18, 2023, the Department of Finance announced proposed changes (the "Amendments") to regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the "PCMLTFA"). The Amendments aim to address money laundering concerns raised by the Government of British Columbia (as well as the Cullen Commission) and the 2018 Parliamentary Review Report from the House of Commons Standing Committee on Finance. They are subject to a 30-day consultation period, which runs until March 20, 2023.
New Obligations for Armoured Car Sector and Mortgage Lending Entities
The Amendments would bring businesses in the armored car sector and mortgage lending entities within the scope of the PCMLTFA. As a result, these entities would be subject to a number of compliance obligations, including those related to developing a compliance program, client identification, reporting and record keeping.
Previous legislative amendments to the PCMLTFA designated armoured car businesses as reporting entities thereunder, however the Amendments are necessary in order to subject these businesses to the more detailed obligations that are set out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations.
Mortgages issued by private lenders (as opposed to regulated financial institutions) are currently outside the scope of the PCMLTFA. The Amendments bring entities of all sizes involved in the mortgage lending process (including brokers responsible for mortgage origination, lenders responsible for underwriting the loan, and administrators responsible for servicing the loan) within the scope of the PCMLTFA, with the intention of mitigating the risk of these entities being used for money laundering and/or terrorist financing purposes and to level the playing field for all entities involved in the mortgage lending process.
Additional Requirements Relating to Correspondent Banking Relationships
The Amendments will require Canadian financial entities to conduct enhanced due diligence on foreign entities with which they have correspondent banking relationships. For example, financial entities would be required to:
- take reasonable measures to assess, based on information that is accessible to the public, the reputation of the foreign financial institution with respect to its compliance with anti-money laundering and anti-terrorist financing requirements, and the quality of the anti-money laundering and anti-terrorist financing supervision of the jurisdiction in which the foreign financial institution was incorporated and the jurisdiction in which it conducts transactions in the context of the correspondent banking relationship; and
- periodically conduct ongoing monitoring of correspondent banking relationships to detect suspicious transactions, keep information about the foreign financial entity up to date, re-assess the risk associated with the foreign financial institution's transactions and activities related to the correspondent banking relationship and determine whether transactions and activities remain consistent with the information obtained about the foreign financial institution and with the risk assessment.
Increasing Cross-Border Currency Reporting Penalties
The Amendments would increase the administrative penalties under the Cross-border Currency and Monetary Instruments Reporting Regulations. As opposed to the current penalties, which are fixed, the Amendments would make the penalty amount proportional to the violation by tying the penalty amount to, among other things, the percentage of the undeclared funds.
A Cost Recovery Framework for FINTRAC
Previous amendments to the PCMLTFA, which are not yet in force, mandate that FINTRAC ascertain the total expenses incurred from its compliance activities in the preceding fiscal year and assess those expenses against reporting entities. Pursuant to new proposed Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations, FINTRAC would calculate such expenses payable by reporting entities based on asset value in Canada of federally regulated banks, trust and loan companies, and life insurance companies, and the volume of threshold transaction reports. These new assessment regulations are scheduled to come into force in the spring of 2024, such that FINTRAC would be able to start recovering incurred expenses from the 2024-2025 fiscal year.
*The authors gratefully acknowledge the contribution of Gurkirat Batth, Articling Student.
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