PROCESSING...

Anti-Money Laundering
Consulting Services & Strategies

0 Items - Total: $0.00 CAD

Identification Triggers for Factoring Companies

Background

We recently sought clarification from FINTRAC as it relates to identification requirements that Factoring Companies (Factors) must comply with.

Factors supply liquidity to a customer in exchange for the cash value of a certain amount of the customer’s accounts receivable (i.e. invoices) to be collected later by the factoring company. A factor is defined as a person or entity that is engaged in the business of factoring, with or without recourse against the assignor.

If you missed it, Factors became reporting entities under the PCMLTFA effective April 1, 2025. As a reporting entity, Factors must have in place a compliance program and comply with various requirements, including identification requirements.  Please refer to our previous blog post on Factors that outlines full requirements that factors must comply with.

Identification Requirements

Factors must confirm identification using prescribed methods for individuals and entities where they are required to keep a record as defined under section 24.14 of the

Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations.

Section 24.14 states a factor shall keep the following records in respect of every factoring agreement that it enters into:

(a) an information record in respect of the person or entity with whom it enters into the agreement;

 (b) if the information record is in respect of an entity, a record of the name, address and date of birth of every person who enters into the agreement on behalf of the entity and the nature of the person’s principal business or their occupation;

 (c) if the 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 factor;

 (d) a record of the financial capacity of the person or entity with which it enters into the agreement and the terms of the agreement;

 (e) for any payment it makes; and

 (f) a receipt of funds record in respect of every amount of $3,000 or more that it receives, 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.

As it relates to the last record, funds may come from a party other than the factoring client (a third party) and in such instances it is not sufficient to rely on identification that would have been completed for the factoring client, but rather the third party would have to be identified.

Below is a response from FINTRAC:

Under the PCMLTFA, specifically section 24.14(f), a receipt of funds record must be kept for every amount of $3,000 or more, unless the funds are received from a financial entity, public body, or a person acting on behalf of such an entity.

In response to your question:
If funds are received from a party other than the identified factoring client, identification requirements may still apply depending on who that third party is.

If the third party is not:

    • a financial entity,
    • a public body, or
    • acting on behalf of one,

then yes, identification and a receipt of funds record would be required, even if the factoring client has already been identified. This is because the receipt of funds record pertains to who the funds are actually received from, not just who the factoring agreement is with.

Identification of the factoring client alone is not sufficient if funds are received from another party who does not fall under the exemptions in s. 24.14(f). The source of funds must be identified and recorded accordingly.

The factoring company must take reasonable measures to identify the sender, document those efforts, and keep a receipt of funds record.

While this may prove to be challenging in some instances, demonstrating that reasonable measures were taken becomes critical.

We’re Here To Help

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

New Reporting Entity: Factoring Companies

Background

On March 26, 2025 final amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations were officially published in the Canada Gazette (SOR/2025-68). This round of anticipated changes introduces three company types that will become reporting entities. Below, we summarize the requirements that Factoring Companies will have to comply with as of April 1, 2025.

Factoring Companies (Factors)

Factors supply liquidity to a customer in exchange for the cash value of a certain amount of the customer’s accounts receivable (i.e. invoices) to be collected later by the factoring company. A factor is defined as a person or entity that is engaged in the business of factoring, with or without recourse against the assignor.

Requirements

All reporting entities (including Factoring Companies, as of April 1, 2025) must have in place a compliance program as defined under the PCMLTFA and associated regulations. The following is a summary of the requirements, as well as links to FINTRAC guidance (some of which will need to be updated).

Program Elements

  • Appoint a compliance officer who is responsible for implementing the compliance program and have oversight. The Compliance Officer must always have access to management and have the authority to carry out their duties.
  • Develop and apply written compliance policies and procedures that describe what is required under law and how these obligations will be met. These must be kept up to date and approved by a senior officer.
  • Conduct and document a risk assessment of your business. This assessment should include all activities that could make an entity vulnerable to money laundering or terrorist financing, as well as the mitigating controls that are put into place to prevent such risks.
  • Develop and maintain an ongoing compliance training program for your staff and agents. Everyone that deals with customers, customer funds, or transactions must receive AML and ATF training at least annually.
  • Conducting compliance effectiveness reviews. This is an audit that tests a company’s AML and ATF program and its effectiveness. These reviews must be completed at least once every two years.

Operational Elements

  • Reporting certain transactions. Where there are reasonable grounds to suspect that a particular financial transaction is related to the commission of a money laundering or terrorist activity financing offence, a Suspicious Transaction Report must be summitted to FINTRAC. This includes Large Cash and Large Virtual Currency reporting.
  • Follow ministerial directives and perform watchlist screening. Where a company may be in possession of funds or property that belong to a terrorist (either an individual or an organization) or a listed person, a Listed Person or Entity Report must be submitted to FINTRAC.
  • Identifying customers. Upon entering into a factoring agreement or when an information record is created, Factoring Companies will need to verify the identity of a customer using prescribed methods for individuals and entities.
  • Conducting transaction monitoring.
  • Conducting enhanced due diligence and enhanced transaction monitoring for high-risk customers.
  • Keeping certain records. In addition to keeping records related to the requirements above, Factoring Companies are required to keep the following records:
    • an information record in respect of the person or entity with whom it enters into the agreement;
    • if the information record is in respect of an entity, a record of the name, address, and date of birth of every person who enters into the agreement on behalf of the entity and the nature of the person’s principal business or their occupation;
    • if the 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 factor;
    • a record of the financial capacity of the person or entity with which it enters into the agreement and the terms of the agreement;
    • for any payment it makes, a record of:
      • the date of the payment,
      • if the payment is in funds, the type and amount of each type of funds involved,
      • if the payment is not in funds, the type of payment and its value,
      • the method by which the payment is made,
      • the name of every person or entity involved in the payment, and
      • every account number or other equivalent reference number connected to the payment; and
    • a receipt of funds record in respect of every amount of $3,000 or more that it receives, 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.

What Next?

Factoring Companies should start working on developing their compliance program immediately if they have not done so already. FINTRAC has updated their sector-specific guidance page with relevant information for this new reporting entity and should be read.

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.

Return to Blog Listing