Written with Heidi Unrau
We have recently become aware that some reporting entities may not be up to speed on a new piece of regulation that came into force earlier this year. If your business has received an invoice from The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), you will want to read this article.
As of April 1, 2024, FINTRAC officially transferred the cost of its compliance activity from taxpayers to the businesses it regulates, referred to as reporting entities (RE). The move comes four years after the government announced its intention to cut the purse strings in its 2020 Fall Economic Statement. This change allows FINTRAC to start recovering costs from the 2024-2025 fiscal year.
Why the Change?
FINTRAC, Canada’s financial intelligence agency, was previously bankrolled by the taxpayer through the federal budget. The purpose of the new funding model is to align the costs of compliance with those responsible for adhering to anti-money laundering regulations. Simply put, the businesses that are legally required to comply should be the ones funding the oversight needed to ensure compliance. The move aligns with other regulatory agencies that have already established funding models allowing them to recover the costs of their supervisory functions.
Each year, FINTRAC will forecast the total cost of the program for the next three fiscal years. This will determine the amount charged to reporting entities for the upcoming year. They must aso communicate how funds were spent against plans and priorities during the previous fiscal year. This information is included in FINTRAC’s Departmental Results Report.
How the Funding Model Works
Federally regulated financial institutions such as banks, trust and loan companies, and insurance companies are always required to contribute a minimum base amount. All other entities only pay if they submit 500 or more threshold transaction reports to FINTRAC in a fiscal year (i.e. large cash transaction reports [LCTRs], large virtual currency transaction reports [LVCTRs], electronic funds transfer reports [EFTRs], and casino disbursement reports [CDRs]). These ‘other entities’ include but are not limited to:
- Money Services Businesses
- Dealers in Precious Metals and Stones
- Real Estate Brokerages
- Securities Dealers
- Casinos
- Etc.
The Cost Formula
FINTRAC calculates how much reporting entities need to pay based on four key factors:
- Type of Entity: Federally regulated entities are charged differently from non-federally regulated entities. These include banks, trust and loan companies, and insurance companies. Federally regulated entities are subject to a base amount, whereas non-federally regulated entities are not subject to this particular fee.
- Base Amount: This is the minimum starting fee based on the total value of assets controlled by a federally regulated entity, excluding the assets of their subsidiaries. Base amounts are tiered based on asset value in Canadian dollars. There are nine asset value ranges, from $1 to $1 trillion, with corresponding base amounts ranging from $5,000 to $250,000.
Range of asset values Corresponding base amount $1,000,000,000,000 or more $250,000 Between $500,000,000,000 and $999,999,999,999 $200,000 Between $100,000,000,000 and $499,999,999,999 $150,000 Between $10,000,000,000 and $99,999,999,999 $100,000 Between $1,000,000,000 and $9,999,999,999 $75,000 Between $500,000,000 and $999,999,999 $50,000 Between $100,000,000 and $499,999,999 $25,000 Between $10,000,000 and $99,999,999 $10,000 Between $1 and $9,999,999 $5,000 Source: FINTRAC
- Remaining Compliance Cost: This is the leftover cost after collecting the base amounts, divided among all types of reporting entities.
- Transaction Volume: Businesses that report over 500 large transactions to FINTRAC pay an additional fee on top of the base amount. Federally regulated banks are not subject to this reporting threshold.
Therefore, the more assets you have and transactions reported to FINTRAC, the higher your final bill will be. Each type of business has its own formula for calculating their share of the cost:
| Type of Entity (Business) | How Charges Are Calculated |
|---|---|
| Federally Regulated Banks | Base Fee + extra charges based on the value of Canadian Assets. |
| Trust & Loan Companies, Life Insurance Companies | Fewer than 500 reports: Base Fee only.
500 or more reports: Base Fee + extra charges based on value of Canadian assets and volume of large transactions reported. |
| All Other Entities | Over 500 reports: Charges based on volume of large transactions reported compared to others in the same category. |
Case Study: How Much Will They Pay?
A small, family-owned currency exchange kiosk in Winnipeg, Manitoba, operates from a single location and is not part of a chain. FINTRAC regulates this type of business as a Money Services Business (MSB). The store typically submits roughly 700 large cash transaction reports each year. Since they exceed the 500 reports threshold, FINTRAC calculates their charges like this (based on industry averages):
Calculation
- Base Amount: Not applicable because it is not a federally regulated financial institution (FI).
- Remaining Compliance Cost: Total compliance cost to be divided is $33,110,000. This is the sum of all base amounts subtracted from the annual cost of FINTRAC’s compliance program.
- Total Reports Submitted by All Entities: 35,000,000 transaction reports were submitted to FINTRAC for the year by all reporting entities, including banks.
- Total Reports Submitted by Only Non-Bank Entities: 3,500,000 transactions were submitted to FINTRAC by non-bank entities only, regardless of the transaction reporting threshold amount.
- Total Reports Submitted Over the Threshold by Non-Bank Entities: 3,425,000 transactions were submitted to FINTRAC by non-bank entities exceeding the 500-transaction reporting threshold.
- Number of Reports Submitted by The Currency Exchange Kiosk: This is the total number of transactions reported to FINTRAC by the currency exchange kiosk in Winnipeg, MB.
Final Charge
Using FINTRAC’s formula: $33,110,000 x (3,500,000 ÷ 35,000,000) x (700 ÷ 3,425,000) = $676.70
Result
The currency exchange kiosk’s total charge for the year would be approximately $676.70. Based on their reporting activity, the bill reflects their share of FINTRAC’s overall compliance costs. Because the kiosk is not a federally regulated bank, trust, loan, or insurance company, the base amount does not apply.
FINTRAC will notify the business via email with an invoice for the cost assessment. The total amount owed is final, conclusive, binding, and due in full upon receipt of the invoice.
Impact on Your Business
The additional financial burden is not ideal, especially for small businesses, but there are ways you can prepare for it. First, you’ll need to budget effectively to avoid surprise charges. Visit the FINTRAC website for a detailed breakdown of the formula used for your type of business, known as ‘Type of Entity’.
Exact charges will vary from year to year depending on the value of your Canadian assets (if applicable), the number of large transactions reported (more or less than 500), and FINTRAC’s compliance cost analysis.
Next, and most importantly, you need an effective and efficient anti-money laundering program to avoid the cost of non-compliance. Violations can result in reputational damage that negatively impacts your business as well as potentially expensive fines, known as administrative monetary penalties (AMPs). FINTRAC has recently levied record-breaking fines for serious violations by repeat offenders. These penalties are preventable and well within your control.
Need a Hand?
If you have any questions or concerns about the new funding model, reach out to us today. We’re here to help you every step of the way, from understanding your new financial obligation, to building, reviewing, or fine-tuning your AML program.