Proposed Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act Regulations Expand Scope to Mortgage Lending and Armoured Car Sectors
On February 17, 2023, the Canadian federal government published proposed amendments to the regulations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”). Among other things, the draft amendments to the regulations would bring within scope of the PCMLTFA the mortgage lending and armoured car carrier sectors, and seek to establish a cost-recovery framework that would allow the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) to recover supervision costs from the entities they regulate. Comments are due March 20, 2023.
The amendments follows a 2018 consultation paper by the Department of Finance Canada which suggested expanding scope of the PCMLTFA to a number of new sectors, including mortgage lenders and armoured cars. Of note, the paper had also raised the possibility of expanding the scope of the PCMLTFA to a number of other types of entities, such as white label automated teller machines, pari-mutuel betting and horse racing, mortgage insurers, land registries and title insurance companies, company service providers, luxury goods dealers, jewelry auction houses, which are not included in these proposed amendments.
Mortgage Lending Sector
While banks, credit unions and trust companies are subject to the PCMLTFA, many other entities involved in the mortgage process are currently not subject to the Act. For example, brokers responsible for mortgage origination, lenders responsible for underwriting loans and administrators responsible for servicing loans are not considered reporting entities under the PCMLTFA. The amendments to the PCMLTFA intend to bring those entities into the scope of PCMLTFA and mortgage lenders, brokers and administrators, regardless of the size of their business, would join financial entities in becoming reporting entities under the PCMLTFA.
The proposed amendments define these entities as follows:
- Mortgage lenders are defined as any non-financial entity that is “engaged in providing loans secured by mortgages on real property or hypothecs on immovables.”
- Mortgage brokers are defined as any non-financial entity that is “authorized under provincial legislation to act as an intermediary between a mortgage lender and a borrower.”
- Mortgage administrators are defined as any non-financial entity “that is engaged in the business of servicing mortgage agreements on real property or hypothec agreements on immovables on behalf of a lender.”
Once the amendments are in force, such entities would be required to develop an AML compliance program (including having in place compliance policies and procedures, appointing an AML compliance officer and conducting training), apply customer due diligence measures including identity verification and beneficial ownership requirements and report certain transactions to FINTRAC (such as large cash transactions, large virtual currency transactions, suspicious transactions and terrorist property reports).
In addition, mortgage administrators, mortgage brokers and mortgage lenders will be required to maintain the following records:
- Receipt of funds records - a receipt of funds record in respect of every amount that they receive in connection with a mortgage, unless the amount is received from a financial entity or public body or from a person who is acting on behalf of a client that is a financial entity or public body;
- Information records - an information record in respect of every person or entity (i)in the case of a mortgage administrator, for which they service a mortgage agreement; (ii) in the case of a mortgage broker, for which they arrange a loan secured by real property, and (iii) in the case of a mortgage lender, to which they provide a loan secured on real property or from which they raise funds for such a loan;
- Borrower information - in respect of any loan secured by real property, a record of the client’s financial capacity, the terms of the loan, the nature of the client’s principal business or their occupation and, if the client is a person, the name and address of their business or place of work; and
- Corporate records - if the receipt of funds record or information record is in respect of a corporation, a copy of the part of official corporate records that contains any provision relating to the power to bind the corporation in respect of transactions with the mortgage administrator, mortgage broker or mortgage lender.
Penalties for breaching these requirements range would range from $1 to $1,000 per violation for a minor violation, $1 to $100,000 per violation for a serious violation, and $1 to $100,000 per violation for an individual and from $1 to $500,000 per violation for an entity a very serious violation.
Armoured Car Sector
The proposed amendments seek to include businesses in the armoured car sector as reporting entities subject to the PCMLTFA and under the oversight of FINTRAC. The Regulatory Impact Analysis Statement notes that the armoured car sector has a cash-intensive clientele and provides services largely similar to those regulated by the PCMLTFA. The Regulatory Impact Analysis Statement also notes that the transportation of currency and negotiable instruments poses a high risk of money laundering and terrorist financing due to the broad and complex services offered by the armoured car sector.
Once the amendments are in force, such entities would be required to develop an AML compliance program (including having in place compliance policies and procedures, appointing an AML compliance officer and conducting training), apply customer due diligence measures including identity verification and beneficial ownership requirements and report certain transactions to FINTRAC (such as large cash transactions, suspicious transactions and terrorist property reports).
The following are other proposed amendments to the PCMLTFA regulations:
- Additional Requirements in Respect of Correspondent Banking Relationships: The Department of Finance Canada notes that both the Financial Action Task Force (“FATF”) and the Bank of International Settlements consider correspondent banking relationships as highly vulnerable to misuse for money laundering and terrorist financing. Accordingly, to mitigate these risks and to better align with existing international standards and expectations, the proposed amendments to the PCMLTFA include enhanced requirements and due diligence measures that Canadian financial entities must satisfy prior to entering a correspondent banking relationship, namely:
- Taking reasonable measures to assess the reputation of the foreign financial entity in regard to its ability to mitigate money laundering and terrorist financing risks, and the quality of supervision to which it is subject prior to entering into a correspondent banking relationship; and
- Conducting a risk assessment of their correspondent banking relationships and, based on the result of the risk assessment, conducting ongoing monitoring of their correspondent banking relationships to keep information about the foreign financial entity up to date and assess if its transactions and activities remain consistent with the correspondent banking relationship and risk profile.
- Cost Recovery Framework for FINTRAC’s Compliance and Related Activities: The proposed amendments also introduce a cost recovery scheme for FINTRAC in connection with its administration of the PCMLTFA for compliance purposes and to assess those expenses against reporting entities. FINTRAC will provide detailed guidance regarding the cost recovery framework.
- Enhanced MSB Registration Framework: The proposed amendments will also expand the information that is required to be submitted to FINTRAC when applying for MSB registration, such as contact information for the CEO, president, directors or owners, and the countries of operation for an applicant, its agents or branches.
- Increased Cross-Border Currency Reporting Penalties: In 2016, the FATF noted that Canada’s administrative monetary penalties (“AMP”) for failing to declare currency or monetary instruments of $10,000 or more when crossing the Canadian did not effectively deter people from attempting to move undeclared funds in and out of Canada. Accordingly, the proposed amendments will increase the amount of the penalties to help Canada meets its international obligations under FATF. The amendments also respond directly to the recent findings in the Cullen Commission report, which noted that the current penalties for violations of Canada’s cross-border cash smuggling regime were neither proportionate nor dissuasive.
- Streamlined Requirements for Sending AMP Documents to Reporting Entities: The proposed amendments will allow AMP documents to be sent to reporting entities either electronically, through registered mail or physical delivery.
Coming into Force
Generally, the proposed amendments would take effect on April 1, 2024.
However, as noted in the Regulatory Impact Analysis Statement, small mortgage lending entities may be disproportionately impacted due to having fewer resources to ensure compliance with the new requirements. To mitigate the burden, the Department of Finance Canada will provide 8 months of transition time by delaying the coming into force of the amendments for mortgage-related businesses, giving them time to comply with the new requirements.
In addition, the coming into force of the amendments impacting the armoured car sector and amendments with respect to correspondent banking relationships will be delayed by 8 months.
A 12-month-delayed transition period will also be granted for MSBs to give sufficient time for FINTRAC to operationalize the changes.
The proposed amendments broaden the regulatory scope of the PCMLTFA. To ensure forthcoming compliance with these new regulations, it is important that entities involved in the mortgage process and other businesses referenced in the proposed amendments review the requirements in detail and provide comments in the 30 day window, which concludes on March 20, 2023.
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 These amendments were published in three parts: One containing the Regulatory Impact Analysis Statement providing overall background on the amendments and amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations, the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (“PCMLTFR”), the Cross-border Currency and Monetary Instruments Reporting Regulations, the Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations (the “AMP Regulations”); a second covering additional amendments to the PCMLTFR and the AMP Regulations; and a third setting out the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations.
PCMLTFA AML mortgage