Canada has long recognized the importance of a robust regulatory framework to combat AML/ATF. With the rapid evolution of financial crimes and increasing global scrutiny, the country’s regulatory system continually adapts to address new threats and align with international standards. The federal government’s 2023 Budget and recent proposals from the Department of Finance Canada (Finance Canada) signal significant updates to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and related regulations. This article provides an in-depth look at the key proposed updates, which encompass mortgage lenders, armored car companies, penalties for cross-border cash violations, and more.
Historically, the PCMLTFA’s requirements have primarily applied to banks and other traditional financial institutions. However, as alternative lenders and non-bank financial institutions grow, so does the risk of financial crime within these sectors. To address this, Finance Canada has proposed to include mortgage lenders, administrators, and brokers as regulated entities under the PCMLTFA.
Key obligations for mortgage-related entities will include next-mentioned.
These measures aim to close regulatory gaps and ensure that mortgage professionals adopt the same rigorous standards as traditional financial institutions.
Armored car services have historically operated outside the core financial regulatory framework, but given their role in transporting large sums of cash and negotiable instruments, they have increasingly become a target for money laundering activities. As part of the proposed amendments, armored car companies will be subject to new compliance requirements.
New obligations for armored car companies include next-mentioned.
These requirements will be effective six months after their publication, providing armored car companies time to develop the necessary compliance programs and prepare their staff.
Correspondent banking, which involves one financial institution providing services to another, is often high-risk due to potential exposure to foreign financial institutions with limited AML controls. To address this risk, Canadian financial institutions will be required to conduct ongoing due diligence on correspondent banking relationships.
Key compliance measures for financial institutions include:
By aligning Canadian standards with international recommendations, these changes aim to bolster transparency and prevent the abuse of correspondent banking for money laundering or terrorist financing purposes.
A common technique in money laundering involves transferring large amounts of cash across borders to conceal its origins. Under current laws, individuals or entities must declare any currency or monetary instruments valued at $10,000 or more when crossing Canadian borders. To deter non-compliance, Finance Canada has proposed to increase penalties for undeclared cross-border cash.
The proposed penalty structure is as follows.
These revised penalties, which will take effect upon registration, are designed to create a strong deterrent against the illicit movement of cash and reduce opportunities for financial crime.
Money service businesses (MSBs), which include currency exchanges and money transfer companies, play a significant role in Canada’s financial system but are susceptible to misuse by criminals. Under the proposed amendments, MSBs will need to provide additional information during registration with FINTRAC.
The updated registration requirements will include next-mentioned.
By increasing transparency in MSB registration, these updates are intended to strengthen FINTRAC’s ability to assess the risks associated with each MSB applicant and ensure the integrity of Canada’s financial system.
To support its expanding supervisory mandate, Finance Canada has proposed the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations (Assessment Regulations). This new framework will allow FINTRAC to recover a portion of its supervision costs from specific entities that it regulates, including banks, life insurance companies, and foreign financial institutions.
The cost recovery framework will:
This new framework, if approved, will take effect on April 1, 2024, marking a shift towards shared responsibility in funding AML/ATF oversight.
In March 2023, Finance Canada released an Updated Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada, which provides insights into the vulnerabilities and threats facing various industries. The report highlights industries that may be at high risk but are currently unregulated under the PCMLTFA.
Notable risk findings include next-mentioned.
The report underscores the need for increased transparency and stronger controls, particularly around beneficial ownership. It also suggests that unregulated high-risk sectors may face future regulation to mitigate their risk exposure.
With over 24,000 Canadian financial institutions and businesses regulated under the PCMLTFA, Canada’s AML/ATF regime continues to evolve. The proposed updates reflect the federal government’s commitment to modernizing financial crime legislation, enhancing transparency, and ensuring that all entities involved in high-risk financial activities uphold stringent compliance standards. Businesses in regulated sectors should monitor these developments closely, update their AML/ATF policies, and prepare for the possibility of additional compliance obligations. Meanwhile, unregulated entities in high-risk sectors may wish to begin assessing their own exposure to financial crime risks as the regulatory landscape continues to evolve.
These regulatory updates highlight Canada’s proactive approach to combating financial crime and ensuring that its financial ecosystem remains secure, transparent, and resilient.