Synopsis
FINTRAC expanded its regulatory scope to include the mortgage industry starting on October 11, 2024 — and it is crucial to comply with FINTRAC's obligations to avoid strict penalties. It is critical for those in the mortgage industry to understand:
- The new requirements
- Who is impacted
- How to submit reports
- The penalties for noncompliance
- How to comply with FINTRAC
Additionally, external support can help you understand your AML compliance obligations and assist with developing and implementing an AML program.
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) expanded its regulatory scope to include the mortgage industry starting on October 11, 2024. This decision occurred after conducting several assessments of inherent money laundering and terrorist financing risks in Canada. These assessments show that unregulated mortgage lenders are highly vulnerable to money laundering and terrorist financing through mortgage fraud and other methods.
Mortgage administrators, brokers, and lenders must now meet new anti-money laundering (AML) obligations — and it is crucial to understand who must comply and how to meet FINTRAC's standards to avoid penalties. Let's discuss who must comply, review FINTRAC's requirements, and explore the steps your business can take to meet its AML obligations.
What are the new requirements?
FINTRAC expanded its scope to include the mortgage industry on October 11, 2024. To reduce the risk of money laundering and terrorist financing, mortgage entities are now required to implement a compliance program, maintain detailed records, and verify the identities of clients.
Additionally, regulated mortgage entities must report certain types of financial transactions to FINTRAC, including:
- Terrorist property
- Large cash and virtual currency transactions
- Suspicious activities that may be linked to money laundering, terrorist financing, or sanctions evasion
Who is impacted?
The following entities are now subject to FINTRAC's AML compliance obligations:
- Mortgage administrators — An individual or entity (excluding financial entities) that services mortgage or hypothec agreements on real property or immovable properties on behalf of lenders.
- Mortgage brokers — An individual or entity authorized under provincial legislation to act as an intermediary between a lender and a borrower for loans backed by mortgages on real property or hypothecs on immovable properties.
- Mortgage lenders — An individual or entity (excluding financial entities) that issues loans secured by mortgages on real property or hypothecs on immovable properties.
FINTRAC has provided a self-assessment questionnaire to help those in the mortgage industry determine if they are subject to its compliance obligations. Click here to take the assessment.
How to submit reports
Mortgage entities subject to FINTRAC's regulations are required to report certain activities as soon as possible. This includes suspicious transaction reports (STRs) for any suspicious activity, including suspected sanctions evasion, and terrorist property reports if connected to terrorism. Mandatory large cash transaction reports are required for any cash transaction of $10,000 or more. Large cash transaction reports are not required if the funds come from financial institutions or public bodies.
Mortgage professionals can submit these required reports through FINTRAC's Web Reporting System. Reports can also be submitted via system-to-system transfers if the mortgage entity uses a mortgage platform that is compatible with FINTRAC's application programming interface (API).
What are the penalties for non-compliance?
FINTRAC has the authority to issue penalties to those found noncompliant with its strict obligations. The amount is based on the severity of the violation and may range from fines up to $1,000 for minor infractions to penalties as high as $100,000 for individuals and $500,000 for businesses for serious violations.
Noncompliance may result in criminal charges with fines up to $2 million and the potential for imprisonment in severe cases. Additionally, repeated, or severe noncompliance may result in reputational damages to your business and the potential loss of licensing.
What steps can your business take to comply with FINTRAC?
Establish a compliance program
Develop an AML compliance program, appoint a compliance officer, create clear policies to identify clients, keep detailed records, and report transactions. It is crucial to continuously assess for risks, including high-risk clients and transactions, to ensure your compliance program meets FINTRAC's standards.
Employee training
Regular employee training is crucial to stay compliant with FINTRAC's obligations. This involves ensuring that your staff is trained and up to date on both the latest AML/ATF requirements — such as how to identify and report suspicious activity.
Know your client
It is crucial to verify the identity of all clients before starting a business relationship through government-issued photo IDs or credit checks. Additional steps for higher-risk clients, such as employing enhanced measures to support ongoing monitoring, can help your business meet FINTRAC's obligations.
Continuous monitoring and reporting
Monitor your client's transactions and report suspicious activity or cash transactions over $10,000 — including virtual currency transactions over this amount.
Detailed recordkeeping
Detailed records of client identification, transactions, and reports can help your mortgage business prove compliance if examined by FINTRAC. These records should be maintained for at least five years.
External support
External support can help you understand your AML compliance obligations and assist with developing and implementing an AML program. An advisor can also evaluate the effectiveness of your program and help you prepare for and respond to regulatory examinations.
Take the next steps
For more information, contact a member of MNP's Anti-Money Laundering Services team. We have a deep understanding of your compliance requirements and can tailor solutions to fit your unique business model and strategy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
