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Ministerial Directives Related to Iran & LVCTRs

There have been a number of conversations floating around about FINTRAC Large Virtual Currency Transaction Reporting (LVCTR) obligations as it relates to transactions involving Iran, and potentially involving Iran, under the current Ministerial Directive (MD). While this is not a new requirement (LVCTRs were effective June 1, 2021 and the original MD became effective July 25, 2020), there has been clarification provided with regards to reporting, and what activities trigger which reports.

For background, Outlier Compliance Group wrote an article on what the Iran-related MD entails, so if you are not familiar with the requirements, we suggest starting there.

Existing Guidance

The existing MD guidance does not align with the information provided in a recent policy interpretation for reporting transactions involving Iran that generally are not otherwise reportable, such as a transaction below the reporting threshold. The current guidance says the following:

Any transaction involving the receipt of virtual currency (VC) for exchange to Iranian rial, or VC that is equivalent to an amount under the reporting threshold of $10,000 CAD must be reported using the LVCTR by:

    • Inserting the IR2020 code when using the LVCTR upload; or
    • Selecting IR2020 in the ‘Ministerial Directive’ field of the LVCTR.
    • Because the report is related to the MD, you must ensure that the information provided reflects a connection to Iran.

Recent Interpretation

On June 11, 2023, a policy interpretation was submitted to clarify FINTRAC’s expectations with regards to reporting VC transactions related to the Iran MD. A few specific scenarios were included to ensure an easily digestible response was provided. The portion below is the most noteworthy sections of the response from FINTRAC clarifying the expectation of reporting virtual currency transactions that are below the reporting threshold where there is a nexus to Iran:

To answer your question regarding other instances that could involve the receipt of VC originating from Iran in one or more transactions under the threshold, please refer to section 3) of the Ministerial Directive. It states that any transaction (originating from or bound for Iran) must be treated as a high-risk transaction for the purposes of subsection 9.6(3) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), and must be reported to FINTRAC. Where these transactions involve the receipt of VC but cannot be reported using an LVCTR, they must be reported using the Suspicious Transaction Report (STR) with the IR2020 code.  Only completed transactions can be reported through an STR if the only reason for reporting is that the transaction is originating from or bound for Iran. An attempted transaction should only be reported when you have reasonable grounds to suspect that the transaction is related to the attempted commission of a money laundering or terrorist activity financing offence. 

Further to section 3(a) of the Ministerial Directive, you need to look at a variety of elements when determining whether a transaction originates from or is bound for Iran because the circumstances of each transaction are different. The exchange of VC for Iranian rial is not the only circumstance in which a VC transaction may fall under the Ministerial Directive. After you’ve considered the facts, contexts and indicators of a transaction and you determine it is subject to the Ministerial Directive, you must determine if the transaction(s) should be reported using the LVCTR or STR, as described above.

I’ve provided the reporting information for the scenarios you presented in your email:

    1. Virtual currency that originates from an identified virtual currency exchange in Iran.
      • Report the transaction in the STR with code IR2020.
    2. Virtual currency that originates from a wallet address identified as being in or from Iran.
      • When the conductor, beneficiary or third party address details list Iran as the country, and the transaction is not a VC exchange to Iranian rial, report the transaction in the STR with code IR2020.
    3. Travel rule information from the receiving client (or from a participant in the travel rule network) that sent the virtual currency from an address associated with an Iranian virtual currency exchange, or a person or entity in Iran that is not captured under the Ministerial Directive.
      • If a VC transaction has travel rule information that indicates it originates from or is bound for Iran and it does not meet the LVCTR criteria for the Ministerial Directive, the transaction must be reported using the STR with code IR2020.

So What Do I Need To Do?

What is important to understand in this clarification, is the obligation to report every transaction that has a nexus to Iran, such as originating from a VC exchange in Iran, and how that is to be reported. Where a transaction is not otherwise reportable to FINTRAC via an LVCTR, it must be reported using a Suspicious Transaction Report (STR) and the MD indicator IR2020 must be selected (we also suggest including IR2020 in the opening of the narrative in Section G). Transactions that are not otherwise reportable to FINTRAC include VC exchange transactions below the reporting threshold, as referenced in the response from FINTRAC.

Moving Forward

In order to ensure you are compliant with the MD obligation, a thorough lookback to June 1, 2021 for all VC transactions below the reporting threshold, that may have had a nexus with Iran, needs to be performed. Should transactions that should have been reported be found, a Voluntary Self-Disclosure of Non Compliance (VSDONC) should be submitted to FINTRAC. For more information on VSDONCs and how to complete one, please see our blog post on the topic.

Need a Hand?

If you are looking for help completing a lookback or would like a second set of eyes on a VSDONC, please feel free to contact us.

Proposed 2023 AML Changes: Mortgage Lenders and Armoured Car Services

Background

February seems to be the month for proposed legislative changes.

On February 18, 2023, draft amendments to the regulations under the Proceeds of Crime Money Laundering and Terrorist Financing Act (PCMLTFA), and a net-new draft regulation, were published in the Canada Gazette. If you’re the type that likes to read original legislative text, you can find it here. We (thanks Rodney) also created a redlined version of the regulations, with new content showing as tracked changes, which can be found here.

These changes are meant to renew and improve Canada’s anti-money laundering (AML) and Counter Terrorist Financing (CTF) regime, adapting to new money laundering (ML) and terrorist financing (TF) risk. One of the most significant changes, in our opinion, is the introduction of two new regulated entity types, mortgage lenders and armoured car companies.

Currently, mortgages issued by financial entities are captured under the PCMLTFA but these amendments would make all entities involved in the mortgage lending process (brokers responsible for mortgage origination, lenders responsible for underwriting the loan, and administrators responsible for servicing the loan) reporting entities. The intent here is to level the playing field between regulated and unregulated mortgage lenders, and to deter misuse of the sector for illicit activities.

While the activity of transportation is not currently supervised for AML purposes per se, armoured car carriers provide services largely to regulated entities. Given the flow of funds that is typically seen in this sector, reconciliation and identification of the origin of funds can sometimes be challenging, and allows funds to move with some degree of anonymity, which is an ML/TF vulnerability.

The draft regulations also introduce new requirements for correspondent banking relationships, and additional requirements related to the Money Services Business (MSB) registration. There are also some technical amendments related to existing reporting requirements and changes related to Administrative Monetary Penalties (AMPs).

Lastly, a new regulation would introduce a prescribed formula for the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to assess the expenses it incurs in the administration of the PCMLTFA against reporting entities. Such models are seen from other regulators, such as the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC). Currently, FINTRAC is funded through appropriations.

In the following sections, we have summarized what we feel are the most important requirements to note.

Armoured Car Companies

The proposed changes would require a company that engages in “transporting currency or money orders, traveller’s cheques or other similar negotiable instruments” (except for cheques payable to a named person or entity) to be considered an MSB. As such, the following obligations will have to be met:

  • Development of a compliance program;
  • Maintaining an up-to-date MSB registration with FINTRAC;
  • Conducting compliance effectiveness reviews;
  • Reporting certain transactions;
  • Identifying customers;
  • Record keeping;
  • Risk ranking customers and business relationships;
  • Conducting transaction monitoring and list screening;
  • Conducting enhanced due diligence and transaction monitoring for high-risk customers and business relationships; and
  • Follow ministerial directives and transaction restrictions.

One record keeping obligation to note, which is new for armoured car companies, is the requirement to record the following information when transporting CAD 1,000 or more of cash or virtual currency, or CAD 3,000 or more in money orders or similar negotiable instruments:

  • The date and location of collection and delivery;
  • The type and amount of cash, virtual currency or negotiable instrument transported;
  • The name and address of the person or entity that made the request, the nature of their principal business/occupation and, in the case of an individual, their date of birth;
  • The name and address, if known, of each beneficiary;
  • The number of every account affected by the transport, the type of account, and the name of the account holder;
  • Every reference number that is connected to the transport, and has a function; equivalent to that of an account number; and
  • The method of remittance.

An additional requirement that will apply to armoured car companies is in relation to PEP determinations (existing PEP requirements for MSBs still apply). Specifically, a PEP determination is required whenever a person requests that the MSB transport more than CAD 100,000 in cash or virtual currency, or in an amount that is not declared.

Under the proposed regulations, there are some exemptions for reporting that are noteworthy. Large Cash and Large Virtual Currency reporting requirements will not apply where there is an agreement of transportation between:

  • The Bank of Canada and a person or entity in Canada;
  • Two financial entities;
  • Two places of business of the same person or entity; or
  • Canadian currency coins for purposes of delivery under the Royal Canadian Mint.

It is noteworthy, based on the definition, that there may be more than just armoured car companies that are captured under these new requirements. This will be clarified in guidance from FINTRAC that will follow publication of the legislation.

The requirements applicable to armoured car companies will come into force eight months after final publication in the Canada Gazette.

Mortgage Lending

The proposed regulations would require mortgage lenders, brokers, and administrators (mortgage participants) to put in place compliance regimes, similar to that of other regulated entities, which include the following:

  • Development of a compliance program;
  • Conducting compliance effectiveness reviews;
  • Reporting certain transactions;
  • Identifying customers;
  • Keeping records;
  • Risk ranking customers and business relationships;
  • Conducting transaction monitoring and list screening;
  • Conducting enhanced due diligence and transaction monitoring for high-risk customers and business relationships; and
  • Follow ministerial directives and transaction restrictions.

It is noteworthy, that many mortgage brokers already have existing voluntary AML compliance programs and already apply AML measures. This is in part due to various securities regulations and lending partners.

The requirements applicable to mortgage lending will come into force six months after final publication in the Canada Gazette.

Cost Recovery

As part of this round of regulatory changes, there is a net-new regulation, the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations. This regulation will allow FINTRAC to pass on expenses, to reporting entities, that it incurs in the administration of the PCMLTFA. Only the following prescribed entity types are affected by this:

  • Banks and authorized foreign banks;
  • Life insurance companies;
  • Trust and loan corporations; and
  • Every entity that made more than 500 threshold reports during the previous fiscal year.

The regulations provide a formula that FINTRAC would use to calculate the assessment amounts payable by reporting entities on the basis of their annual asset value, and the volume of all threshold transaction reports submitted. For clarity, threshold transaction reports include Large Cash Transaction Reports (LCTRs), Large Virtual Currency Transaction Reports (LVCTRs), Electronic Funds Transfer Reports (EFTRs), and Casino Disbursement Reports (CDRs).

The requirement would come into force on April 1, 2024. This means FINTRAC would commence recovering costs from the 2024-2025 fiscal year and forward.

Other Changes

Enhancing MSB registration

Under the proposed amendments, as part of MSB registration, MSBs would now need to include the telephone numbers and email addresses of its president, directors and every person who owns or controls 20% or more of the MSB. This is in addition to current required information. Additionally, the number of the MSB’s agents, mandataries and branches in each country will be added (currently, only those within Canada are required).

This requirement will come into force twelve months after final publication in the Canada Gazette.

Streamlining requirements for sending AMPs

Under the proposed amendments, FINTRAC would be allowed to serve a reporting entity solely by electronic means when issuing an AMP. Currently, FINTRAC would also have to send an additional copy by registered mail.

This requirement would come into force on registration.

What Next?

There is a 30 day comment period (ending March 20, 2023) for the proposed regulations. It is strongly recommended that industry, and potentially impacted companies, review carefully and provide feedback. Comments can be submitted online via the commenting feature after each section of the proposed changes, or via email directly to Julien Brazeau, Associate Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance, 90 Elgin Street, Ottawa, Ontario K1A 0G5.

We’re Here To Help

If you have questions related to the proposed changes, or need help starting to plan, you can get in touch using the online form on our website, by emailing us directly at info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

The Proposed Retail Payment Activities Regulations

Background

On February 11, 2023, the proposed Retail Payment Activities Regulations were published in the Canada Gazette. This is to support the Retail Payment Activities Act (RPAA) which was released under Bill C-30 and received royal assent in June 2021. The Retail Payment Activities Regulations are required to bring the RPAA into force.

A Payment Service Provider (PSP) is defined as an individual or entity who performs payment functions as a service or business activity that is not incidental to another service or business activity. Certain entities, such as financial institutions, are exempt as they are regulated under other federal obligations (i.e., Office of the Superintendent of Financial Institutions’ Operational Risk and Enterprise Risk management guidelines.)

The current lack of requirements and supervision increases risks, such as the risk of financial loss in instances of business insolvency, and threats to the security of sensitive personal information. The Regulations aim to address gaps in the supervision of unregulated PSPs and are meant to align with other jurisdictions which already have regimes for PSPs.

The principles that guide the Regulations are:

  • Necessity — supervision should address risks that lead to significant harm to end users and avoid duplication of existing rules;
  • Proportionality — level of supervision should be commensurate with the level of risk posed by the payment activity;
  • Consistency — similar risks should be subject to a similar level of supervision; and
  • Effectiveness — requirements should be clear, accessible and easy to integrate within different payment services.

PSPs will be required to apply and register with The Bank of Canada (no date for this yet). There is a proposed registration fee of CAD 2500. Additionally, an annual assessment fee will be required.

In the following sections, we have summarized what we feel are the most important requirements to note.

Operational Risk Management

PSPs will have to implement and maintain an Operational Risk Framework consisting of the following:

  • Identify its operational risks (i.e., business continuity, cybersecurity, fraud, data management, information technology, human resources, process and product design and implementation, change management, physical security and third parties);
  • Protect its retail payment activities from those risks;
  • Detect incidents and control breakdowns;
  • Respond to and recover from incidents;
  • Review, test and audit its Risk Management Framework;
  • Establish roles and responsibilities for the management of operational risk;
  • Have access to sufficient human and financial resources; and
  • Manage risks from third-party service providers, agents and mandataries.

PSP must ensure that the above are proportional to the impact that a reduction, deterioration, or breakdown of its payment activities could have on end users.

Incident Response

Under the proposed Regulations, PSPs must develop a comprehensive plan for investigating, responding to and recovering from incidents that have a material impact on an end user. An incident is defined as an event or series of related events that is unplanned and that results in or could reasonably be expected to result in the reduction, deterioration or breakdown of any payment activity performed by a PSP.

The incident would be reported to the Bank of Canada and would include the following at a minimum:

  • A description of the incident;
  • The impact on individuals or entities listed in the Act; and
  • Actions taken by the PSP to respond to the incident.

There would also need to be a notice to impacted end users and other impacted parties.

PSPs can only resume operations after an incident once they have verified the integrity and confidentiality of all systems, data and information have been restored, and that it is able to perform retail payment activities without reduction, deterioration or breakdown.

Audit, Testing and Training

Under the proposed Regulations, PSP’s will have to complete various types of testing related to the Framework and have training in place.

All staff who have a role in establishing, implementing or maintaining the PSP’s Risk Management Framework must be provided with the information and training that are necessary to carry out that role.

Framework Review

On at least an annual basis, PSP’s must evaluate its compliance with regulatory requirements. Such a review is also required before any significant changes are made to the PSP’s operations or controls after an incident (defined in the section above).  The findings of the review must be reported to a senior officer.

Testing

PSPs must also establish and implement a testing methodology to determine the effectiveness of its Risk Management Framework. This must be tested at least once every three years and findings must also be provided to a senior officer.

Independent Review

In addition to the above, a PSP must have their Framework independently reviewed at least every three years. The review must be documented and describe the scope, methodology use and findings. Findings of the review must be reported to a senior officer.

Biennial Independent Review

PSPs must have requirements related to safeguarding of funds tested at least once every two years by a sufficiently skilled individual who has had no role in the establishment, implementation, or maintenance of the safeguarding requirements under a PSPs Framework. We discuss what safeguards requirements are below.

Safeguards

PSPs will be required to hold customer funds in a trust account or a segregated account, with insurance or a guarantee to safeguard end-user funds against financial losses due to insolvency.

For consumer protection, the Regulations contain requirements to protect the end user from loss. These requirements include:

  • End-user funds must be held at prudentially regulated financial institutions;
  • Insurance or guarantee cannot be from an affiliate of the PSP;
  • The proceeds from the insurance or guarantee cannot form part of the PSP’s estate;
  • The Bank of Canada must be notified at least 30 days in advance of the cancellation of the insurance or guarantee;
  • PSPs must implement and maintain a written fund safeguarding framework to ensure that end-users have reliable access to their funds without delay; and
  • PSPs must keep a ledger with the names of their end-users and the amount of funds held.

This will require detailed flow of funds documentation.

Reporting

Under the proposed Regulations , PSPs will have to complete various types of reports.

Annual Report

PSPs will need to provide an annual report to the Bank of Canada, no later than March 31 of each year.  Some of the information that must be contained in the report is:

  • A description of any changes made to the payment service provider’s risk management and incident response framework;
  • A description of the human and financial resources for implementing and maintaining the risk management and incident response framework;
  • A description of the PSP’s operational risks in respect of the reporting year, their potential causes and the manner in which they were identified;
  • A description of the systems, policies, procedures, processes, controls, including any approvals required;
  • A description of training;
  • A description of all reviews, and independent reviews; and
  • A description of any incidents that the payment service provider experienced during the reporting year.

Also, the report will need to contain certain volume and value statistics related to the services a PSP is providing.

Significant Change Report

PSPs will be required to notify the Bank of Canada, at least five days in advance, before making a significant change that could materially impact operational risks or the safeguarding of end user funds.

The information that must be contained in the report is:

  • The name and contact information of the individual who may be contacted regarding the significant change;
  • A description of the change or new activity to be performed;
  • The reason for the change or new activity;
  • The date on which the change is to be made;
  • The PSP’s assessment of the effect that the change or new activity will have on its operational risks; and
  • A copy of all documentation in relation to the PSP’s Risk Management Framework, that has been amended to reflect the change or new activity, including any necessary approvals.

If a PSP has senior officers, the change or new activity must be approved and receive formal sign off by senior management before submission of a report. This should be taken into account from a planning perspective, as it can take some time to obtain such internal approvals.

Incident Report

PSPs must report incidents that have a material impact on an end user, other PSPs, or designated financial market infrastructures, to the Bank of Canada and other impacted individuals and entities.

The information that must be contained in the report is:

  • A description of the incident;
  • What impact does the incident have on individuals and entities; and
  • What actions have been taken by the PSP to respond and remediate.

The Regulations do not make it clear what timeframe is required for reporting such incidents, however they do state the standard time to respond to a request from the Bank of Canada is 15 days. Failure to report an incident can result in an administrative monetary penalty classified as very serious.

What Does This Mean?

From the highlights, it’s evident that these Regulations will create a substantial burden for PSPs, especially ones that are smaller or just starting. A significant amount of time, resources and cost are going to be needed to manage the compliance requirements that PSPs will need to follow. If a PSP does not comply or there is partial compliance, they may be subject to administrative monetary penalties that range from CAD 1,000,000 per each serious violation, up to CAD 10,000,000 per each very serious violation. The draft Regulations did not make clear what a dispute process would like.

It should be noted that most PSPs captured under the RPAA are also considered money services businesses (MSBs), and as such must also comply with anti-money laundering (AML) compliance obligations. Check out our blog related to that here.

What Next?

Due to these changes not being final, we wait. There is no set date for when we can expect final legislation or when they will come into force, but it is a good time to start budgeting and align resources.

Also, as there is a 45-day comment period for the proposed Regulations which closes on March 28, 2023, PSPs should review the Regulations carefully and provide feedback. Comments can be submitted online via the commenting feature after each section of the proposed Regulations, via email, or via regular mail to Nicolas Marion, Senior Director, Payments Policy, Department of Finance, 90 Elgin Street, Ottawa, Ontario K1A 0G5.

We’re Here To Help

If you have questions related to the proposed changes, or need help starting to plan, you can get in touch using the online form on our website, by emailing us at info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

New Illegal Wildlife Trade Indicators

FINTRAC has published a new Operational Alert on the Illegal Wildlife Trade.

The alert includes diagrams of known fund flows, both into and out of Canada (though the latter is most common). Three categories of indicators are included:

  • General wildlife trade,
  • Import into Canada, and
  • Export from Canada.

As a Compliance Officer, it’s important to think through where these indicators might be visible to you and your team. For instance, if you are offering remittance or payment services, and there is an available memo or purpose of payment field, there are several keywords in the indicators that should be added to your monitoring parameters (if they haven’t been already).

All Canadian reporting entities must use this information to:

  • Update the indicators in training materials,
  • Update the indicators in policies and procedures, and
  • Update transaction monitoring mechanisms (where applicable) to detect relevant indicators.

Of course, if you require assistance, Outlier Compliance is here to help. Please feel free to contact us.

Suspicious Transaction Reporting Updates

FINTRAC has published updated resources related to upcoming changes to suspicious transaction reports (STRs) on its Draft Documents page. This includes updated draft guidance on STRs, expected to come into force in September 2023.

While the updated forms are not yet in use, it is important that you communicate these changes to your information technology (IT) teams and service providers. The documentation published this week includes JSON schemas and API endpoints.

For reporting entities that complete STR reporting manually through FINTRAC’s online reporting portal, it is also important to familiarize yourself with updated structured reporting fields, including:

  • URL,
  • Type of device used,
  • Username,
  • Device identifier number,
  • Internet protocol address, and
  • Date and time in which online session request was made.

These can be reviewed in the draft STR form.

Of course, if you require assistance, Outlier Compliance is here to help, please contact us.

New Terrorist Financing Indicators

FINTRAC Registration

FINTRAC has published updated indicators related to terrorist activity financing.

These are subdivided into three broad types of violent extremism:

  • religiously motivated violent extremism (RMVE),
  • politically motivated violent extremism (PMVE), and
  • ideologically motivated violent extremism (IMVE).

Each subtype has distinct characteristics and indicators. While it can be tempting to think that these types of things don’t happen here, unfortunately, they can and do happen here in Canada. As a Compliance Officer, it’s important to think through where these indicators might be visible to you and your team.

All Canadian reporting entities must use this information to:

  • Update the indicators in training materials,
  • Update the indicators in policies and procedures, and
  • Update transaction monitoring mechanisms (where applicable) to detect relevant indicators.

Of course, if you require assistance, Outlier Compliance is here to help, please contact us

First AML Compliance Effectiveness Review Timing

As a company that gets to work with a lot of startups, and existing companies entering the Canadian market, we get to help folks understand the regulatory landscape in Canada. One of the required elements of a Canadian compliance program is an AML Compliance Effectiveness Review. These reviews must be completed every two years at a minimum. You can think of it like an audit, but for compliance.

The purpose of an effectiveness review is to determine whether your AML compliance program has gaps or weaknesses that may prevent your business from effectively preventing, detecting and deterring money laundering and terrorist financing. Recently, we have seen an increased focus on Effectiveness Reviews during FINTRAC examinations. Specifically, on whether the review really tested the effectiveness of the compliance program as a whole (not just what you say you’re doing, but also what you’re actually doing). This has led to FINTRAC examiners requesting the working papers for completed effectiveness reviews where the report did not clearly describe how the effectiveness was tested and assessed. This is the main reason Outlier has started providing our working papers with the final report. This also provides a pretty good reference point for making sure you are meeting your regulatory expectations.

First Time for Everything

In previous engagements, Outlier has operated on the theory that the clock for when your first review was due stemmed from the MSB’s FINTRAC registration date. However, we were incorrect. It wasn’t until a recent conversation where the registration date preceded any customer transactions by six months, that really spurred on an official clarification from the regulator. The trigger for the 2-year clock to start ticking is not registration but “a registered MSB is required to create a compliance program once it engages in one or more of the MSB-related activities.” This means that the clock starts ticking after the MSB has conducted their first transaction.

Here is a PDF version of the policy interpretation we received from FINTRAC that you can keep for your records.

Potential Corrections

If we have completed a review for you in the past that has a commencement date prior to your first customer transaction, please feel free to reach out so we can amend your report to the proper date.

Upcoming Effectiveness Reviews

While this article talks about your first review, you must also be sure to initiate all subsequent reviews within 2 years of the start date of your previous review. Please note that this is based on the previous commencement date, not the date of completion or issuance of the final report.

Need a Hand?

If you are looking for an idea of pricing for an upcoming review or have questions about a review that is currently underway, please feel free to contact us.

Effectiveness Reviews for Dealers in Virtual Currency

Effective June 1, 2020, dealers in Virtual Currency activities were considered as Money Services Businesses (MSBs) and as such, must comply with MSB obligations under amendments made to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). One obligation is to have an AML effectiveness review at least once every two years. MSBs must start their effectiveness review no later than two years from the start of their previous review or in the case of dealers in Virtual Currency, no later than June 1, 2022, the date they were considered to be MSBs under law.

Such reviews must test your compliance program and effectiveness of your operations. Our reviews follow a similar format to examinations conducted by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which you can read more about in a previous Blog Post.

We’re Here To Help

If you have not yet engaged or commenced your review, there are still a couple of weeks to be compliant. If you would like to engage Outlier to conduct your AML Compliance Effectiveness Review or have questions regarding this obligation, please get in touch.

Amendments To The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations – 2022

Background

On April 27, 2022 amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations were published in the Canada Gazette. To make reading these changes a little easier, we (thanks Rodney) have created a redlined version of the regulations, with new content showing as tracked changes, which can be found here.

The Regulatory Impact Statement for these changes state the following:

Crowdfunding platforms and some payment service providers are not currently covered by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) and therefore have no money laundering and terrorist financing obligations under federal statute. This lack of oversight presents a serious and immediate risk to the security of Canadians and to the Canadian economy. This risk was highlighted in early 2022, when illegal blockades took place across Canada that were financed, in part, through crowdfunding platforms and payment service providers. Allowing these gaps to continue represents a risk to the integrity and stability of the financial sector and the broader economy, as well as a reputational risk for Canada.

Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, and consequential amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations, will help prevent the financing of illegal activities through these types of financial services.

What’s Changed?

The changes are substantial and sudden. They will affect many companies that have not been previously under the purview of AML regulation in Canada. These changes are effective immediately and there is no comment period, which is not the norm for such changes.

To help digest these changes, we have summarized what we feel are the most important changes below:

The definition for an electronic funds transfer has been removed and the corresponding section within the body of the regulations was amended. Previous exemptions related to remitting or transmitting from one person or entity to another by Credit or Debit Card, or Prepaid Payment Product if the beneficiary has an agreement with the payment service provider that permits payment for the provision of goods and services, has been revoked for money services businesses, which as we mentioned now includes Payment Service Providers.

The definitions section was amended by adding the following:

  • crowdfunding platform means a website or an application or other software that is used to raise funds or virtual currency through donations. (plateforme de sociofinancement)
  • crowdfunding platform services means the provision and maintenance of a crowdfunding platform for use by other persons or entities to raise funds or virtual currency for themselves or for persons or entities specified by them.

With these changes, crowdfunding platforms and payment service providers will now be subject to existing money services businesses requirements. These obligations include:

  • Registration with FINTRAC;
  • Developing a compliance program;
  • Customer identification and due diligence;
  • Transaction monitoring and customer risk scoring;
  • Reporting certain transactions to regulators and government agencies;
  • Complying with Ministerial Directives; and
  • Keeping records.

Specific to record keeping, crowdfunding platforms that provide services to persons or entities in Canada where a person donates an amount of CAD 1,000 or more in funds or virtual currency will need to:

(a) keep an information record in respect of the person or entity to which they provide those services;

(b) keep a record of the purpose for which the funds or virtual currency are being raised; and

(c) if the person or entity for which the funds or virtual currency are being raised is different from the person or entity referred to in paragraph (a),

      1. keep a record of their name, and
      2. take reasonable measures to obtain their address, the nature of their principal business or their occupation and, in the case of a person, their date of birth, and keep a record of the information obtained.

What Next?

Due to these changes, FINTRAC will need to revise its interpretation of existing requirements to include crowdfunding platforms and payment service providers. There is no set date for when we can expect guidance from FINTRAC. Additionally, various FINTRAC policy interpretations will no longer be able to be relied upon (i.e. policy interpretations related to merchant services as well as payment processing for utility bills, mortgage and rent, payroll, and tuition being exempt from AML obligations). The hope is FINTRAC will issue new policy interpretations, but for now the industry is left with many questions.

We’re Here To Help

If you would like assistance in understanding what these changes mean to your business, or if you need help in creating or updating your compliance program and processes, please get in touch.

Information Should Be Free!

Outlier has produced an open-source AML and CTF, and Privacy repositories of definitions, acronyms, and terminology that is free for whoever wants it.

Please feel free to provide contributions and/or feedback, as it would be greatly appreciated. We have already had three contributors!

Discombobulated

About a year ago, we had a client who was interacting with the world of Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF) for the first time. They were aggravated by the amount of jargon, acronyms, and uncommon uses of certain commonly understood terms. An example is, a business relationship. Those of you that are relatively familiar with the AML space know a business relationship doesn’t mean what the rest of the world thinks it means. In Canada, in the AML context, it means something very different.

A Helping Hand

At the time, they wished for a simple reference point where they could easily find the meaning for different terms. Unfortunately, this entails combing multiple locations, including FINTRAC’s website, plus the Act and Regulations themselves. To make a long story short, there is no easy way. Fed up, they (not so) gently suggested that we (Outlier) fix this. Their idea was creating a GitHub repository.

For those unfamiliar with GitHub, it is a web-based hosting service for version control. It is mostly used for computer code, but has also been used to write and edit books. It offers access control and several collaboration features. A GitHub repository is where the code and/or information is maintained for a specific project. This process is fairly simple to someone who is a coder with years of experience working with GitHub. For myself, this was not so simple. A year later, almost to the day, the repository is created, open and available to the public. There is no need to be scared, you are able to comment and make suggestions without knowing how to code at all. If you can’t figure out how to provide commentary in GitHub, send it to use via email at info@outliercanada.com with the subject line “GitHub Feedback.”

The Power of Collaboration

The (not so) gentle nudge meshed well with one of Outlier’s core beliefs: that information should be free. By collecting the information, housing it in GitHub, and making it available to anyone, we are able to provide free information to everyone who wants it. By making information free and public, it gives others the opportunity to make suggestions, add content, and improve the quality of the information.

What Happens When We Work Together?

By sharing this open-source project with the world, we are looking to empower anyone willing to be empowered. From the client who is interacting with the world of AML for the first time. To the seasoned-veteran who is looking for helpful resources. To the person who wants to provide their customer with a helpful resource. Take the information and do what you wish with it. If you would like to attribute Outlier, awesome! If not, that’s ok too. Our only request is this should never be provided for a fee.

Have a Question?

If you looked at the resource and are curious about how to make a contribution, please feel free to contact us anytime. Contributions can include anything from corrections and suggestions, to the addition of different jurisdictional definitions, specifically the European perspective.

This is not a solicitation (but we do get this request often), should you want to provide a tip in BTC or ETH, our addresses are listed below.

To open a channel with our Lightning Node, our address is: 03acb418d5b88c0009cf07d31ec53d0486814bc77917c352bd7e952520edf7bf3c@99.236.76.38:9735

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