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2019 AML Changes For DPMSs

Background

On July 10th, 2019, the highly anticipated final amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations were published. This article is intended to give a high-level summary of the amendments as specific to DPMSs. If you’re the type that likes to read original legislative text, you can find it here. We also created a red-lined version of the regulations, with new content showing as tracked changes, which can be found here.

It is expected that all regulated entities will have to significantly revamp their AML compliance program due to the amount of changes. There are three different “coming into force” dates that should be noted:

  • June 25, 2019: a wording change from “original” to “authentic” related to identification. This is welcomed news for digital identification.
  • June 1, 2020: changes related dealers in virtual currency (which do not apply to DPMSs).
  • June 1, 2021: all other regulatory amendments.

This does give regulated entities some time to get their AML compliance programs updated and in order, but we recommend that you start budgeting and planning now.

Updated guidance from FINTRAC is expected to be seen ahead of the coming into force dates. Given the legislative changes, there will be changes to FINTRAC policy interpretations as well so be sure to monitor closely and save any interpretations that you may have used for due diligence purposes.

Hefty Disclaimer

This article should not be considered advice (legal, tax or otherwise). That said, any of the content shared here may be used and shared freely – you don’t need our permission. While we’d love for content that we’ve written to be attributed to us, we believe that it’s more important to get reliable information into the hands of community members (meaning that if you punk content that we wrote, we may think you’re a jerk but we’re not sending an army of lawyers).

What Does This Mean For My Business?

Changes to Canada’s AML regulations will have a direct impact on DPMS AML obligations, including the following:

  • Reporting;
  • Customer identification; and
  • Compliance Program requirements.

While there are quite a number of changes, only some will have more of an impact on DPMSs. We’ve summarized the changes that will impact DPMSs below.

Defining a DPMS

The recent amendments has changed the definition of a DPMS slightly to read:

(1) A dealer in precious metals and precious stones, other than a department or an agent of Her Majesty in right of Canada or an agent or mandatary of Her Majesty in right of a province, that buys or sells precious metals, precious stones or jewellery, for an amount of $10,000 or more is engaged in an activity for the purposes of paragraph 5(i) of the Act. A department or an agent of Her Majesty in right of Canada or an agent or mandatary of Her Majesty in right of a province carries out an activity for the purposes of paragraph 5(l) of the Act when they sell precious metals to the public for an amount of $10,000 or more.

(2) The activities referred to in subsection (1) do not include a purchase or sale that is carried out in the course of or in connection with manufacturing a product that contains precious metals or precious stones, extracting precious metals or precious stones from a mine or polishing or cutting precious stones.

(3) For greater certainty, the activities referred to in subsection (1) include the sale of precious metals, precious stones or jewellery that are left on consignment with a dealer in precious metals and precious stones. Goods left with an auctioneer for sale at auction are not considered to be left on consignment.

Neither the PCMLTFA, nor the Regulations, define consignment. As understanding of the term can vary, we hope to see this defined in upcoming FINTRAC guidance.

Certain activities that were already exempt from the DPMS designation, including manufacturing jewellery, extracting precious metals or precious stones from a mine, and cutting or polishing precious stones, has been expanded to capture other types of manufacturing processes that may also involve the use or consumption of precious metals and stones (e.g. diamonds used to manufacture drill bits). This is described as being consistent with the original policy intent.

FINTRAC Reporting

Large Virtual Currency Transaction Reporting

If you accept, or plan on accepting, payments using virtual currencies like bitcoin, these will be treated similar to cash payments. For any payments valued at CAD 10,000 or more, made by or on behalf of the same person or entity within a 24-hour period, you will need to identify the customer, and submit a report to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

24-hour Rule

The final regulations clarify that multiple transactions performed by, or on behalf of, the same customer or entity within a 24-hour period are to be considered as a single transaction for reporting purposes when they total CAD 10,000 or more. Only one report would need to be submitted to capture all transactions that aggregate to CAD 10,000 or more. For DPMSs, this would apply to recipients of CAD 10,000 or more in cash or virtual currency.

Suspicious Transaction Reporting

Currently, if a reporting entity has reasonable grounds to suspect that a transaction, or requested transaction, is related to money laundering or terrorist financing, a report must be submitted to FINTRAC within 30 days of the date that a fact was discovered that caused the suspicion. The revised regulations amended this to “’as soon as reasonably practicable’ after measures have been completed to establish that there are reasonable grounds to suspect that a transaction or attempted transaction is related to money laundering or terrorist financing”.

This means that a report will be due shortly after a reporting entity conducts an analysis that established reasonable grounds for suspicion. It will be important to have detailed processes for unusual transaction investigations. It will be interesting to see how FINTRAC looks at this obligation during examinations.

Terrorist Property Reporting

A very small change related to Terrorist Property Reports has been made in the final regulations. The timing requirement for filing has changed from “without delay” to “immediately”. This means regulated entities need to report that they are in possession of terrorist property as soon as they become aware.

Information Included in Reports to FINTRAC

Certain information is required in reports to FINTRAC. The final regulations introduce changes to reporting schedules, requiring more detailed information to be filed with FINTRAC then previously was required. Even where information is marked as being optional, if a reporting entity has the information, it becomes mandatory to include it. Some of the additional data fields are:

  • every reference number that is connected to the transaction;
  • type of device used by person who makes request online;
  • number that identifies device;
  • internet protocol address (IP address) used by device;
  • person’s or entity’s user name; and
  • date and time of person’s online session in which request is made.

These fields require significantly more data to be included in reports, especially for transactions that are conducted online. Such changes may mean working with your IT folks to ensure you are retaining the necessary data in a format that will be easy to extract.

For full details on what has changed for FINTRAC report fields, we have created unofficial redline which can be found here.

Customer Identification

Currently, there is a requirement that when customers are identified, the document and/or data that you collect must be in its “original” format. The final regulations replace the word “original” with “authentic”, and state that a document used for verification of identity must be “authentic”, valid and current. This would allow for scanned copies of identification documents, so long as authentication of the identification documents takes place.

In addition, there are provisions that allow reporting entities to rely on the identification conducted previously by other reporting entities. If this method is used to identify a customer, the reporting entity must immediately obtain the identification information from the other reporting entity, and have a written agreement in place requiring the entity doing the identification to provide the identification verification as soon as feasible.

Reasonable Measures

In cases where DPMSs were required to keep records related to reasonable measures to obtain certain information (such as third-party determinations for large cash transactions), the requirement has been removed with this round of changes. It is important to note that you must still take reasonable measures where necessary, and it is only the requirement to keep a record of the measures used that has been repealed.

New Products & Technology Channels

One of the deficiencies identified in the Financial Action Task Force (FATF) review of Canada was not having a requirement to assess new technologies before their launch. With this round of changes, all reporting entities will be required to assess the risk related to their products and delivery channels, as well as the risk associated with the use of new technologies, prior to release.

This has been a best practice since the requirement to conduct a risk assessment came into force but this change makes this a formal requirement.

Training Program

While training is a current obligation, the current revisions introduce an additional requirement, for all regulated entities, in which there must be a documented plan for the ongoing compliance training program, and delivery of that training. In practice, this means that in addition to documenting the training that has been completed, you will need to clearly document future training plans.

We’re Here To Help

If you would like assistance in updating your compliance program and processes, or have any questions related to the changes, please get in touch using our online form on our website, by emailing info@outliercanada.com or by calling us toll-free at 1-844-919-1623.

2019 AML Changes For The Real Estate Sector

Background

On July 10, 2019 the highly anticipated final amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), and its enacted regulations, were published. This article is intended to give a high-level summary of changes as they relate to the real estate industry. If you’re the type that likes to read original legislative text, you can find it here. We also created a red-lined version of the regulations, with new content showing as tracked changes, which can be found here.

It is expected that all regulated entities will have to significantly revamp their AML compliance program due to the amount of changes. There are three different “coming into force” dates that should be noted.

 

  • June 25, 2019: a wording change from “original” to “authentic” related to identification. This is welcomed news for digital identification.
  • June 1, 2020: changes related to dealers in virtual currency (which do not apply to the Real Estate sector).
  • June 1, 2021: all other regulatory amendments.

While this does give regulated entities some time to get their AML compliance programs updated, we recommend that you start budgeting and planning from now.

Updated guidance from FINTRAC is expected to be seen ahead of coming into force dates. Given the legislative changes, there will be changes to FINTRAC policy interpretations as well, so be sure to monitor closely and save any interpretations that you may have used for due diligence purposes.

Hefty Disclaimer

This article should not be considered advice (legal, tax or otherwise). That said, any of the content shared here may be used and shared freely – you don’t need our permission. While we’d love for content that we’ve written to be attributed to us, we believe that it’s more important to get reliable information into the hands of community members (meaning that if you punk content that we wrote, we may think you’re a jerk but we’re not sending an army of lawyers).

What Does This Mean For My Business?

As stated above, there are quite a number of changes, but only some have an impact on real estate developers, brokers, and sales representatives. We’ve summarized the changes that will impact the real estate sector below.

Identification

The final regulations replace the word “original” with “authentic”, and state that a document used for verification of identity must be “authentic, valid and current”. This means you can confirm identification, using acceptable documents presented by way of electronic means, so long as it can be authenticated. This will be helpful to real estate developers, brokers, and sales representatives that identify clients in a non-face-to-face manner. This change came into force on June 25, 2019.

Other changes to the identity verification requirements are as follows:

  • For credit file verification (single source), the credit file information must now be derived from more than one source.
  • For the dual source method, when relying on a credit report as part of a dual source, the credit file must have been in existence for at least six months. Additionally, the person or entity that is verifying the information cannot be a source.

FINTRAC Reporting

Virtual Currency

For real estate brokers, sales representatives and developers that conduct transactions that involve virtual currency, the final regulations introduce new reporting requirements for the receipt of CAD 10,000 or more of virtual currency. These basically are the same as large cash reporting obligations, including making a determination if the person from whom the virtual currency is received is acting on behalf of a third party, and will require reporting entities to maintain a large virtual currency transaction record.

The requirements for reporting and recordkeeping for virtual currency are very similar to cash reporting requirements.

24-hour rule

The final regulations clarify that multiple transactions performed by, or on behalf of, the same customer or entity within a 24-hour period are to be considered as a single transaction for reporting purposes when they total CAD 10,000 or more. Only one report would need to be submitted to capture all transactions that aggregate to CAD 10,000 or more. For real estate developers, brokers, and sales representatives, this would apply to recipients of CAD 10,000 or more in cash or virtual currency.

Suspicious Transaction Reporting

Currently, if a reporting entity has reasonable grounds to suspect that a transaction, or attempted transaction, is related to money laundering or terrorist financing, a report must be submitted to FINTRAC within 30 days of the date that a fact was discovered that caused the suspicion. The revised regulations amended this to “as soon as reasonably practicable” after measures have been completed to establish that there are reasonable grounds to suspect that a transaction, or attempted transaction, is related to money laundering or terrorist financing.

This would require reports to be submitted to FINTRAC fairly soon after a reporting entity conducts an analysis that established reasonable grounds for suspicion. It will be important to have detailed processes for unusual transaction investigations. It will be interesting to see how FINTRAC looks at this obligation during examinations.

Terrorist Property Reporting

A very small change (or clarification), related to Terrorist Property Reports, has been made in the final regulations. The timing requirement for filing has changed from “without delay” to “immediately”. This means regulated entities need to report that they are in possession of terrorist property as soon as they become aware.

Schedules

The final regulations introduce changes to reporting schedules, requiring more detailed information to be filed with FINTRAC then previously was required. Even where information is marked as being optional, if a reporting entity has the information, it becomes mandatory to include it. As it relates to real estate developers, brokers, and sales representatives, these changes will impact attempted suspicious and suspicious transaction reporting, terrorist property reporting, large cash reporting, and large virtual currency reporting. Examples of the new data fields are as follows:

  • every reference number that is connected to the transaction (including the sending and receiving addresses for virtual currency transactions);
  • type of device used by person who makes request online;
  • number that identifies device;
  • internet protocol address (IP address) used by device;
  • person’s user name; and
  • date and time of person’s online session in which request is made.

Such changes may mean working with your IT folks to ensure you are retaining the needed data in a format that will be easy to extract.

For more details on what has changed for reporting fields, a comparison of current and proposed FINTRAC report fields can be found here.

Compliance Program

Risk Assessment

One of the deficiencies identified in the Financial Action Task Force (FATF) review of Canada was not having a requirement to assess new technologies before their launch. The final amendments require all reporting entities to assess the risk related to products and their delivery channels, as well as the risk associated with the use of new technologies, prior to release.

This has been a best practice since the requirement to conduct a risk assessment came into force, but this change makes this a formal requirement. This will require strong communication and closer cooperation between compliance officers and teams involved in the development of new services or technology changes.

Training

Under current regulation, if real estate developers, brokers, and sales representatives use agents, mandataries or other persons to act on their behalf, they must develop and maintain a written, ongoing compliance training program for those agents, mandataries or other persons. The final regulations introduce an additional requirement, in which there must be a documented plan for the ongoing compliance training program and delivery of the training.

Records

There are some changes to the details that must be recorded in records that real estate brokers or sales representatives must maintain. In addition to new information that is required for reporting purposes (see the schedules section below), the final regulations add the requirement that information records must contain details of every person or entity for which they act as an agent or mandatary in respect of the purchase or sale of real property or immovables. Under the previous regulations, only information related to the person or entity purchasing real estate was required.

In cases where real estate brokers, sales representatives and developers were required to keep records related to reasonable measures to obtain certain information, the requirement has been removed with this round of changes. It is important to note that you must still take reasonable measures where necessary, and it is only the requirement to keep a record of the measures used that has been repealed.

We’re Here To Help

If you would like assistance in updating your compliance program and/or processes, or have any questions related to the changes, you can get in touch using our online form on our website, by emailing info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

2019 AML Updates for Credit Unions

Background

On July 10th, 2019 the final amendments to Canada’s anti-money laundering (AML) regulations, were published in the Canada Gazette.  Many of the changes are based on requirements set out by the Financial Action Task Force (FATF), an inter-governmental body that sets out international standards for combating money laundering and terrorist financing, as well as from certain amendments made to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) made through the Economic Action Plan 2014 Act, No. 1 and the Budget Implementation Act, 2017, No. 1.

For those that prefer to see the updates in context, we have created unofficial red-lined versions of the regulations, which can be found here.

It is expected that all regulated entities will have to significantly revamp their AML compliance program due to the changes. There are three different “coming into force” dates that should be noted:

  • June 25, 2019: a wording change from “original” to “authentic” related to identification. This is welcomed news for digital identification.
  • June 1, 2020: changes related dealers in virtual currency (which do not directly apply to Credit Unions).
  • June 1, 2021: all other regulatory amendments.

Updated guidance from FINTRAC is expected to be seen ahead of the coming into force dates. Given the legislative changes, there will be adjustments to various FINTRAC policy interpretations so be sure to monitor closely and save any interpretations that you may have used for due diligence purposes.

Hefty Disclaimer

This article should not be considered advice (legal, tax or otherwise). That said, any of the content shared here may be used and shared freely – you don’t need our permission. While we’d love for content that we’ve written to be attributed to us, we believe that it’s more important to get reliable information into the hands of community members (meaning that if you borrow content that we wrote and published publicly, we may think you’re a jerk but we’re not sending an army of lawyers).

What Does This Mean For Your Credit Union?

Changes to Canada’s AML regulations will have a direct impact on a Credit Union’s AML obligations, including the following:

  • Reporting;
  • Record keeping; and
  • Member identification.

Many changes will require adjustments in your IT systems to ensure that all necessary information is available to be included in FINTRAC reports, particularly those involving online transactions. If you’re not sure where to start please feel free to contact us. From a practical standpoint, while you do have some time to update your AML program, it is best to start budgeting and planning now.  It may also be prudent to discuss changes with your board of directors as well.

FINTRAC Reporting

This round of changes to AML regulations has a much greater focus on reporting including changes to the information that will need to be included in various reports. We have summarized the applicable changes below.

Certain reports will require information that was not originally included. These changes include information such as:

  • Purpose of transaction;
  • Source of cash or source of funds;
  • For online transactions:
    • Type of device used by person who makes request;
    • Number that identifies device;
    • Internet Protocol address used by device;
    • Person’s or entity’s user name; and
    • Date and time of when a person makes a request.

While most of these fields are mandatory, where fields are marked as optional, if an entity has the information (this may mean in the background of your IT systems), it is expected that it be included in the report. For full details on what has changed for FINTRAC report fields, we have created an unofficial redline which can be found here.

All changes related to reporting come into force on June 1, 2021.

STR Reporting

Currently, if a reporting entity has reasonable grounds to suspect that a transaction, or attempted transaction, is related to money laundering or terrorist financing, a report must be submitted to FINTRAC. The timeframe for submission was within 30 days of the date that a fact was discovered that caused the suspicion. The revised regulations amend this to “as soon as reasonably practicable after measures have been completed to establish that there are reasonable grounds to suspect that a transaction or attempted transaction is related to money laundering or terrorist financing.”

This means that a report will be due shortly after a reporting entity has conducted their analysis that established reasonable grounds for suspicion. It will be important to have detailed processes for unusual transaction investigations and this should include a step in the process that clearly identifies when a determination is made that establishes reasonable grounds to suspect the transaction is related to money laundering or terrorist financing. A defined time for what “as soon as reasonably practicable” means should be documented as well to ensure reports are completed and submitted on time. It will be interesting to see how FINTRAC looks at this obligation during examinations.

Terrorist Property Reporting

A very small change (or clarification), related to Terrorist Property Reports, has been made in the final regulations. The timing requirement for filing has changed from “without delay” to “immediately”. This means regulated entities need to report that they are in possession of terrorist property as soon as they become aware.

EFT Reporting

The definition of an EFT has changed with the amended regulations and reads as such:

An electronic funds transfer means the transmission by any electronic, magnetic or optical means of instructions for the transfer of funds, including a transmission of instructions that is initiated and finally received by the same person or entity. In the case of SWIFT messages, only SWIFT MT-103 messages and their equivalent are included. It does not include a transmission of instructions for the transfer of funds:

    1. that is carried out by means of a credit or debit card or a prepaid payment product if the beneficiary has an agreement with the payment service provider that permits payment by that means for the provision of goods and services;
    2. that involves the beneficiary withdrawing cash from their account;
    3. that is carried out by means of a direct deposit or a pre-authorized debit;
    4. that is carried out by cheque imaging and presentment;
    5. that is both initiated and finally received by persons or entities that are acting to clear or settle payment obligations between themselves; or
    6. that is initiated or finally received by a person or entity referred to in paragraphs 5(a) to (h.1) of the Act for the purpose of internal treasury management, including the management of their financial assets and liabilities, if one of the parties to the transaction is a subsidiary of the other or if they are subsidiaries of the same corporation.

The definition now includes instructions initiated and received by the same person or entity, which means certain internal transfer transactions may be caught.

Also related to EFT reporting, the final amendments removes the language commonly known as the “first in, last out” rule. This means that the first person/entity to ‘touch’ the funds for a transaction incoming to Canada, or the last person/entity to ‘touch’ the funds for a transaction outgoing from Canada, had the reporting obligation (as long as the prescribed information was provided to them). The update will change the reporting obligation to whoever maintains the customer relationship.

Large Virtual Currency Transaction Reporting

If you plan to conduct transactions involving virtual currencies such as bitcoin, you will be required to report the receipt or the sending of amounts of CAD 10,000 or more in a virtual currency to FINTRAC. These basically are the same as Large Cash Transaction reporting obligations, including making a determination if the person from whom the virtual currency is received is acting on behalf of a third party, and will require reporting entities to maintain a Large Virtual Currency Transaction Record.

Most of the recordkeeping requirements for virtual currency are very similar to Large Cash Transaction requirements.

The 24-Hour Rule

Multiple transactions performed by, or on behalf of, the same customer or entity, or are for the same beneficiary, within a 24-hour period are to be considered as a single transaction for reporting purposes when they total CAD 10,000 or more. This would mean that only one report would need to be submitted to capture all transactions that aggregate to CAD 10,000 or more. If you use software to automatically detect these types of transactions, you should begin discussions with your IT department or software provider to determine the time and resources that will be required to update the detection process.

For example, currently, a Large Cash Transaction Report must be submitted either for single transactions of CAD 10,000 (or more), or for multiple transactions of less than CAD 10,000 each that add up to CAD 10,000 or more in a 24-hour period. This can result in situations where two reports are filed for transactions taking place in a 24-hour period.

Cash deposit of CAD 12,000 – LCTR #1 for CAD 12,000
Cash deposits of CAD 5,000 and CAD 6,000 – LCTR #2 for CAD 11,000

Using the same example, under the new rules we would have:
Cash deposits of CAD 12,000, CAD 5,000 and CAD 6,000 – Single LCTR for CAD 23,000

We can expect to see guidance from FINTRAC ahead of the enforce date. If you have questions prior to this,  it is possible to write to FINTRAC to request a policy interpretation.

Compliance Program

In addition to the process changes, including reporting changes discussed above, there are some other changes that you will need to make to your compliance program.

Training

The amended regulations have introduced a new requirement to institute and document a plan for ongoing compliance training.  This differs from the current requirement to develop and maintain a written training program.

In practice, this means that in addition to documenting all of the training that has already been completed, you will need to clearly document future training plans. Be sure staff is receiving training on process changes that are applicable to their roles.

Risk Assessment

One of the deficiencies identified in the Financial Action Task Force (FATF) review of Canada was not having a requirement to assess new technologies before their launch. The final amendments require all reporting entities to assess the risk related to products and their delivery channels, as well as the risk associated with the use of new technologies, prior to public release.

This has been a best practice since the requirement to conduct a risk assessment came into force, but this change makes this a formal requirement. This will require strong communication and closer cooperation between compliance officers and teams involved in the development of new products or services.

Records of Reasonable Measures

The requirement to keep records related to reasonable measures to obtain certain information, has been removed with this round of changes. It is important to note that credit unions must still take reasonable measures and it is only the requirement to keep a record of the measures used that has been repealed. 

Identification

The range of identification methods that can be used will be broadened. This is good news, especially for credit unions that are using identification methods for members who are not physically present.

Prior to this round of changes, there was a requirement that when members are identified, the document and/or data that you collect must be in its “original” format. The final regulations replace the word “original” with “authentic”, and state that a document used for verification of identity must be “authentic”, valid and current. This would allow for scanned copies of documentation, and/or for software that can authenticate a person’s identification document. This change came into force on June 26, 2019.

Other changes to the identity verification requirements are as follows:

  • For credit file verification (single source), the credit file information must now be derived from more than one source (i.e. cannot contain only one trade line on the credit file);
  • For the dual source method, when relying on a credit report as part of a dual source, the credit file must have been in existence for at least six months. Additionally, the person or entity that is verifying the information cannot be a source (i.e. you cannot be a tradeline of the credit file).

In addition, there are provisions that allow a credit union to rely on the identification conducted previously by other reporting entities. If this method is used to identify a member, the credit union must immediately obtain the identification information from the other reporting entity, and have a written agreement in place requiring the entity doing the identification to provide the identification verification as soon as feasible.

If you have members that are publicly traded trusts, credit unions will be required to obtain names and addresses of all persons who own or control, directly or indirectly, 25% or more of the units of the trust.

Politically Exposed Persons (PEPs)

The amended regulations add some new requirements related to PEPs, which are as follows:

  • You must obtain the “source of wealth” of a PEP; and
  • If a PEP is a head of an international organization, the person will continue to be treated as a PEP for five years after they have held the position.

This change comes into force on June 1, 2021, and will likely result in IT system changes related to record keeping and monitoring.

Prepaid Products

If you offer Prepaid Payment Products, the amended regulations now include new obligations for prepaid cards that are issued by financial entities. The obligations are similar to those that apply to regular member accounts, and comes into force on June 1, 2021.

The regulations apply to any prepaid payment product that is tied to an account, that permits funds or virtual currency that total CAD 1,000 or more to be added to the account within a 24-hour period, or where a balance of CAD 1,000 or more will be maintained.

Records that will have to be maintained are as follows:

  • a record of the name and address of each holder of a prepaid payment product account and each authorized user, the nature of their principal business or their occupation and, in the case of a person, their date of birth;
  • if an account holder is a corporation, a copy of the part of its official corporate records that contains any provision relating to the power to bind the corporation in respect of the prepaid payment product account or the transaction;
  • a record of every application in respect of the prepaid payment product account;
  • a prepaid payment product slip in respect of every payment that is made to the prepaid payment product account;
  • every debit and credit memo that it creates or receives in respect of the prepaid payment product account;
  •  a copy of every account statement that it sends to a holder of the prepaid payment product account; and
  • a foreign currency exchange transaction ticket in respect of every foreign currency exchange transaction that is connected to the prepaid payment product account.

There are also record keeping obligations where an international electronic funds transfer of CAD 1,000 or more has been conducted through the prepaid product. Additionally, a prepaid payment product slip, similar to a deposit slip, must be maintained.

Similar to member accounts, you will also have to keep account applications and any foreign currency transaction information related to the prepaid product. A PEP determination is to be made when the prepaid product account is opened, and when a payment of CAD 100,000 or more is made to a prepaid product account.

We’re Here To Help

If you would like assistance in updating your compliance program and/or processes, or have any questions related to the changes, you can get in touch using our online form on our website, by emailing info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

2019 AML Regulation Highlights for Dealers in Virtual Currency

Back in June 2018, we published an article on proposed AML rules for dealers in Virtual Currency. On July 10th, 2019, updates to Canada’s anti-money laundering (AML) regulations were published in the Canada Gazette. There are three different “coming into force” dates (the dates on which the content of various updates become requirements for regulated entities). 

  • July 10, 2019: a small change in wording (from “original” to “authentic”) is good news for digital identification.
  • June 1, 2020: dealers in virtual currency must be registered as money services businesses (MSBs) and have AML compliance programs in place.
  • June 1, 2021: additional provisions, including reporting large virtual currency transactions.

This is a significant regulatory package with a lot of changes (the document is over 200 pages long). This article will cover the major points for dealers in virtual currency, but it’s important to remember that there is a lot of nuances and differences between business models. We recommend speaking to your local neighbourhood compliance geek about how to adapt to these changes (if you need a compliance geek, please get in touch).

It is also worth noting that tokens that are considered securities would not be considered virtual currencies. Securities and securities dealers were already regulated. If you’re not sure whether or not a token is a security, we recommend reaching out to a securities lawyer (if you need recommendations, please feel free to contact us). It is possible to be both a securities dealer and a dealer in virtual currencies, but if you are only looking for the changes pertinent to securities dealers, you will find those in another article.

Hefty Disclaimers & Sharing

This article should not be considered advice (legal, tax or otherwise). That said, any of the content shared here may be used and shared freely – you don’t need our permission. While we’d love for content that we’ve written to be attributed to us, we believe that it’s more important to get reliable information into the hands of community members (meaning that if you punk content that we wrote, we may think you’re a jerk but we’re not sending an army of lawyers).

Dealers In Virtual Currency

It’s important to start by understanding what’s being regulated. This is best done by considering some of the definitions that have been added to the regulation.

fiat currency means a currency that is issued by a country and is designated as legal tender in that country. (monnaie fiduciaire)

funds means

(a) cash and other fiat currencies, and securities, negotiable instruments or other financial instruments that indicate a title or right to or interest in them; or

(b) a private key of a cryptographic system that enables a person or entity to have access to a fiat currency other than cash.

For greater certainty, it does not include virtual currency. (fonds)

virtual currency means

(a) a digital representation of value that can be used for payment or investment purposes that is not a fiat currency and that can be readily exchanged for funds or for another virtual currency that can be readily exchanged for funds; or

(b) a private key of a cryptographic system that enables a person or entity to have access to a digital representation of value referred to in paragraph (a). (monnaie virtuelle)

virtual currency exchange transaction means an exchange, at the request of another person or entity, of virtual currency for funds, funds for virtual currency or one virtual currency for another. (opération de change en monnaie virtuelle)

In terms of who will be regulated, businesses (whether or not the business is incorporated) that conduct transactions on behalf of their customers, including:

  • Exchanging digital currencies for fiat currencies; and 
  • Exchanging between virtual currencies.

This would include custodial wallet services that hold customers’ private keys on their behalf, as well as exchanges, brokerages, and automated teller machines (ATMs). The requirements apply to foreign and domestically based businesses. The inclusion of foreign MSBs means that it won’t matter where your business is incorporated. If you are targeting your services to Canadians, you are expected to comply with Canadian rules and you will need to be aware of requirements as they apply to your Canadian customers.

One of the most important notes in our view is “These amendments serve to mitigate the money laundering and terrorist activity financing vulnerabilities of virtual currency in a way that is consistent with the existing legal framework, while not unduly hindering innovation. For this reason, the amendments are targeted at persons or entities engaged in the business of dealing in virtual currencies, and not virtual currencies themselves.” It is expected that there will be additional updates to the regulations, and community consultations. During these processes, this distinction should remain an important one.

Digital Identification and “Authentic” Documents

Canadian businesses, such as MSBs, that are regulated for AML purposes must identify certain customers either because there is an ongoing service agreement, an account, or because the customer performs specific types of transactions. In these instances, the methods used to identify customers are prescribed in the regulations. Previously, there was a requirement that any document that was used in identification processes be “original”. A narrow view was taken of the definition of the word original: the document itself, in whatever form it was issued. No scans, copies or other digital representations were permitted. This was a significant challenge in non-face-to-face environments.

Effective on publication of the updates, the word “original” has been replaced with “authentic”. It’s important to keep in mind that while this does allow for documents to be submitted in a myriad of digital formats, there will be an expectation that reporting entities do something in order to determine whether or not the document is authentic. The regulations are not prescriptive in terms of how this will be done. We expect that a number of different solutions, ranging from having a human review documents, to using AI to make risk-based determinations, will be valid. If there are processes that you aren’t sure about, it is possible to write to FINTRAC to request a policy interpretation. We expect that FINTRAC will release updated guidance on identification, and issue many subsequent policy interpretations as the landscape evolves.

For customers that were previously identified, there is an expectation that the customer is identified in accordance with the rules that were in place at the time. Unfortunately, this means that if a customer was identified before the updated regulations were published, and an electronic version of a document was used, the identification may not be considered complete. It will be important for businesses to assess the processes that were in place at this point in time in order to make an accurate determination of whether or not the standards were being met.

Registering as a Money Services Business (MSB)

Although the legislation has been published, Dealers in Virtual Currency are not yet able to register as money services businesses (MSBs) with FINTRAC, Canada’s federal AML regulator and financial intelligence unit (FIU). The process is relatively straightforward, beginning with a pre-registration form. 

The FINTRAC registration process is generally very efficient (taking two to four weeks in total). As part of this process, you must provide FINTRAC with complete information about your business, including:

  • Bank account information;
  • Information about your compliance officer;
  • Number of employees;
  • Incorporation information (if your business type is a corporation);
  • Information about your MSB’s owners and senior management, such as their name and date of birth;
  • An estimate of the expected total dollar amount of transactions per year for each MSB service you provide;
  • Detailed information about every branch; and
  • Detailed information about every Canadian MSB agent.

You are not required to have locations or offices in Canada in order to register as an MSB with FINTRAC. Once registered, the registration must be maintained and you must:

  • Keep registration information up to date;
  • Respond to requests for, or to clarify information, in the prescribed form and manner, within 30 days;
  • Renew our registration before it expires; and
  •  Let FINTRAC know if we stop offering MSB services to Canadians

SCAM ALERT: There is no cost to register an MSB with FINTRAC – although we’ve heard of several scams claiming that there is a fee. Please ensure that you are only registering through valid FINTRAC sites, which will contain “fintrac-canafe.gc.ca” in the url. If you have received a phishing email or other request to pay FINTRAC registration fees, we recommend reporting this to both the Canadian Anti-Fraud Centre and to FINTRAC directly.

All dealers in virtual currency are expected to register with FINTRAC by June 1, 2020.

Building or Updating Your Compliance Program

MSBs in Canada are required to have a documented AML compliance program in place. In all instances, when something is a requirement it’s not enough to have done something to meet that requirement. Both your process and what you’ve actually done in order to meet the requirement must be documented. An AML compliance program has these elements:

  1. Compliance Officer: this is the person who will be responsible for your AML compliance program. They should understand Canadian AML requirements, be relatively senior in your company (access to your Board and Management team is necessary), and sign up to receive updates from FINTRAC.
  2. Policies and Procedures: these are documents that describe what you are required to do, and how you will do it. The processes should be an accurate description of what you are actually doing and detailed enough that a new hire could follow them.
  3. Risk Assessment: this is a document that considers the risk that your business could be used to launder money and/or finance terrorism. FINTRAC has released detailed guidance for MSBs to help create this type of document.
  4. Ongoing Training: any staff (including part-time and temporary staff) that deal with customers, transactions, and systems must receive training on a regular basis (this is generally interpreted to mean at least annually). It’s fine to rely on an external vendor, but your training should also include training on your processes.
  5. AML Compliance Effectiveness Reviews/Audits: every two years, you must complete a formal review of the effectiveness of your AML compliance program and operations. This can be conducted internally or by an external vendor.

In addition, to your documented program, you will need to ensure you operate in a compliant manner which includes, registering with FINTRAC, identifying customers under certain circumstances (more on this under customer identification), collect know your customer (KYC) information, keep records, and report certain transactions to FINTRAC.

All dealers in virtual currency are expected to have compliance programs in place and operational by June 1, 2020.

Customer Identification and Collecting KYC Information

For dealers in virtual currency, customer identification and the collection of KYC information will be required where virtual currency exchange transactions valued at CAD 1,000 or more are conducted. This will include exchanging fiat for virtual currency, as well as exchanges between virtual currencies.

Customers must also be identified, where possible if there are reasonable grounds to suspect that a transaction is related to money laundering or terrorist financing. When a transaction is suspicious, there is no minimum value threshold for identification.

Identification in this context must be completed in specific ways, each of which require particular records to be maintained. The chart below is from FINTRAC’s current customer identification guidance (which must be updated to reflect the change in wording from original to authentic, though other elements remain unchanged).

If the customer is an entity (a company, partnership, trust, etc.), then measures must be taken to confirm the entity’s existence and beneficial ownership. Certain details must be collected for directors, trustees, beneficiaries of trusts, and anyone that owns or controls 25% or more of an entity. This includes “indirect ownership” (such as ownership through another company).

There is also information about the customer that must be collected. For individuals, this includes name, date of birth, address, and occupation or principal business. For entities, this includes name, address, place of incorporation (if applicable), and incorporation number (if applicable). 

All dealers in virtual currency are expected to have processes in place to identify customers and collect KYC information by June 1, 2020.

FINTRAC Reporting

For reporting, there are two important dates. By June 1, 2020, dealers in virtual currency will need to report the same types of transactions that MSBs are currently required to report. These are:

  • Large Cash Transactions: if you receive cash (this means fiat in the form of bills and/or coins) valued at CAD 10,000 or more in the same 24-hour period, by or on behalf of the same customer, it must be reported to FINTRAC within 15 calendar days. 
  • Suspicious Transactions: if there are reasonable grounds to suspect that a transaction is related to money laundering or terrorist financing, it must be reported to FINTRAC within 30 calendar days of the discovery of a fact that led you to determine that the transaction was suspicious.
  • Attempted Suspicious Transactions: if a customer or prospective customer requests a transaction, but does not complete it (including transactions that you reject), and there are reasonable grounds to suspect money laundering or terrorist financing, then it must be reported. The timeframe is the same as it would be for completed transactions.
  • Terrorist Property: if you’re in possession of property (which includes funds and virtual currency) that belong to a terrorist or terrorist group, it must be reported without delay, and the property must be frozen. In addition to reporting to FINTRAC, these reports are also sent to the CSIS and RCMP – by fax. In order to know if customers fall into this category, it is important to screen against lists published by OSFI. We’ve worked with some friends on a tool to make this easier, which you can try here (use the code Free100 for a free trial).
  • Electronic Funds Transfers: if you send or receive international electronic funds transfers (EFTs), including wires, valued at CAD 10,000 or more, by or on behalf of the same customer, it must be reported to FINTRAC within 5 working days.

If you are required to report transactions valued at CAD 10,000 or more in a 24-hour period, you must have a mechanism in place to detect reportable transactions.

It’s noteworthy that if you are conducting international EFTs on your customers’ behalf, you may already be an MSB. The best way to know for certain, in our opinion, is to request a policy position from FINTRAC. This can be done free of charge by emailing guidelines-lignesdirectrices@fintrac-canafe.gc.ca. This can also be done on your behalf by a lawyer or consultant.

By June 1, 2021, a new report will be introduced.

  • Large Virtual Currency Transactions: if you receive virtual currency valued at CAD 10,000 or more in the same 24-hour period, by or on behalf of the same customer, it must be reported to FINTRAC within 5 working days.

There will be some additional changes to reporting and reporting timelines, including the requirement to report suspicious and attempted suspicious transactions “as soon as practicable” after you have determined that there are reasonable grounds to suspect that the transaction is related to money laundering or terrorist financing.

For Extreme Compliance Nerds

We clearly mean nerd as the highest term of admiration and endearment, and for you, we have created red-lined versions of the regulations, with new content showing as tracked changes. This is not an official version of the regulations, and we do, of course, recommend that you check it against the official version.

Need a Hand?

Whether you need to figure out if you’re a dealer in virtual currency, to put a compliance program in place, or to evaluate your existing compliance program, we can help. You can get in touch using our online form, by emailing info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

2019 AML Updates – Redlined Versions

The following red-lined versions have been created to reflect the changes to Canadian anti-money laundering (AML) regulations published in the Canada Gazette on July 10th, 2019.  A redlined version of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), reflecting the changes published in Bill C-97 which received Royal Assent on June 21, 2019, is also included below.

These documents are not official versions of the regulations. Official versions can be found on the Government of Canada’s Justice Laws Website.

 

Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Please click the link below for a downloadable pdf file.

PCMLTFA_July_2019_Redline

 

Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

Please click the links below for downloadable pdf files.

PCMLTFR_July_2019_Redlined_Full

PCMLTFR_July_2019_Redlined_Schedules Removed

Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations

Please click the link below for a downloadable pdf file.

PCMLTF_Suspicious_Transaction_Reporting_Regulations_July_2019_Redlined

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

Please click the link below for a downloadable pdf file.

PCMLTF_Registration_Regulations_July_2019_Redlined

Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations

Please click the link below for a downloadable pdf file.

PCMLTFR_Administrative_Monetary_Penalties_Regulations_July_2019_Redlined

Cross-Border Currency and Monetary Instruments Reporting Regulations

Please click the link below for a downloadable pdf file.

PCMLTFR_Cross-Border_Currency_and_Monetary_Instruments_Reporting_Regulations_July_2019_redline

 

Need a Hand?

Whether you need to figure out if you’re a dealer in virtual currency, to put a compliance program in place, or to evaluate your existing compliance program, we can help. You can get in touch using our online form, by emailing info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

Information Should Be Free!

Outlier has produced an open-source AML and ATF, 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 Anti-Terrorist Financing (ATF) 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

or you can use Tippin.Me.

bitcoin ethereum
3AqYJQhfKYCde7syKKqTJJPdLs6M5CbWkR 0x03CDF23a2Eb070F2c79De5B2E6FB90671D3c70fE
Outlier BTC Tipping Address

FINTRAC Alert – Laundering the Proceeds of a Romance Scam

Quick Overview

On April 11th, 2019, FINTRAC published an Operational Alert issued in part with the Canadian Anti-Fraud Centre.  The information provided related to laundering the proceeds of romance scams and mass marketing fraud. The publication provided an explanation of what constitutes a romance scam, some common indicators that may be present and transaction patterns or flow of funds that may suggest fraud.

What Does it Mean?

The suspicious indicators provided by FINTRAC list circumstances or activities that might signal potential cases of individuals caught in a romance scam or the subject of a mass marketing fraud.  This does not mean that if one or more of the indicators are present that the transaction is definitely suspicious and must be reported to FINTRAC. It is meant to ensure that you are aware of the potential that suspicious activity may be taking place.  In that context, if you are involved in customer’s transactions, whether on the front lines or in back office, you must be aware of the indicators in the alert.  If you do encounter a transaction that may be considered unusual, you should attempt to collect additional information that will aid in the Compliance Officer’s decision to report it or clearly document why it was not considered suspicious. Where the Compliance Officer makes the decision to report the transaction to FINTRAC as suspicious, be sure to include “Project CHAMELEON” or “#CHAMELEON” in Part G—Description of suspicious activity in the STR. This will help to facilitate FINTRAC’s disclosure process.

What Now?

In order to ensure familiarity for anyone who interacts with customers and their transactions, the list of FINTRAC’s indicators should be included in your ongoing AML compliance training program.  Furthermore, the indicators should also be included in your procedure manuals, allowing easy access to the information.  Finally, the indicators should be incorporated into your Risk Assessment documentation.  Specifically, when determining customer risk and the controls used to effectively mitigate potential risks.

We’ve made it easier for you to integrate this content into your program by putting the indicators in a Word document for you.

Need a Hand?

Outlier has taken the list of indicators provided by FINTRAC and formatted them into an easy to use Microsoft Word document, which can be found here.  This should allow companies to easily update their documentation and ensure they are sufficiently monitoring for potential instances of romance scams or mass marketing fraud. If you aren’t sure what to do with this information and would like some assistance, please feel free to contact us.

Are On Demand Products Right For You?

For certain industries, including dealers in precious metals and stones (DPMSs) and real estate, Outlier’s on-demand products are anti-money laundering (AML) and anti-terrorist financing (ATF) programs that you can buy, customize online using our set up wizard, and download in fully customizable formats.

These can be purchased as single elements (Policies & Procedures, Risk Assessments, Training, Compliance Effectiveness Reviews) or bundled to save you money.

Why On Demand Products

Outlier’s co-founder, Amber D. Scott, noticed two things that made her believe that on-demand products could help Canadian reporting entities. First, for many small and medium sized businesses, there are very similar business models and risk profiles. Second, many businesses don’t have the means to pay for consulting services but have the same obligations as larger reporting entities. She had a vision of creating a model that could level the playing field by making it easier for these businesses to create plain language documents in an affordable way.

Are On Demand Products Right For You?

While we’ve worked to keep the on demand products as plain language as possible, they will still require you to be able to read and understand the content and adjust them for your business model and compliance processes. You’ll also need to review and update them regularly (once a year – no matter what, and more often if Canadian laws and/or your business models change).

These program elements can save you money by providing a customizable framework for you to work with, but you’ll need to put in the time and effort to customize them and keep them up to date.

What If You Download A Product And Need Help?

If you’ve downloaded on demand products and you’re stuck, we can help. Please contact us and let us know what you need. In your request, include the product that you’ve purchased and describe the problem that you’re trying to solve. We’ll get back you within two business days. If you need help sooner, please mark your request as urgent, and we’ll do our best to get back to you sooner.

Is Outlier The Only Company That Can Help?

There are a number of professionals in Canada that can help you customize your program, including consultants, lawyers and Compliance Officers working in your field. Using Outlier’s on demand product doesn’t mean that we’re the only people that can work with you, in fact, we believe that competition makes us all better at what we do.

How Do I Buy On Demand Products?

You can buy our on demand products through this website using a credit card. Start by selecting the type of reporting entity that you are to view the products that are currently available.

If you’re looking for something that doesn’t seem to be on the list, please contact us.

Now We Wait… Canada’s Proposed AML Updates

As of last Friday (September 7, 2018) the comment period for Canada’s draft AML amendments has closed (if you have something to say, they’ll likely still accept submissions for a few more days).

TLDR?

Check out our summary here, or this panel digging into the details.

Want to read our submissions? Here they are!

2018Sep07_OutlierCanada Submission to Finance

2018Sep07_Apendix_SurveyResults

What Now?

The Department of Finance is going to head back to the Bat Cave to revise the policy. We expect that a final version will be published at some point in 2019, and that the content will include “dealing in virtual currency” (including businesses like bitcoin exchanges).

Once the final version is published, there will be a transition period (we expect a year or more) before everything is in force. In the meantime, if you’re expecting to be considered a money services business (MSB) when the final version is published, we recommend checking out some of the community events for MSBs, like the Canadian MSB Association (CMSBA)’s Fall Conference in Toronto.

We’re Here To Help

If you have questions about virtual currency and regulation in Canada, or regulation in Canada in general, please contact us.

AML Changes For The Real Estate Sector

Here We Go Again! Canada’s Proposed AML Changes for Real Estate Developers, Brokers and Sales Representatives

 

On June 9th, 2018, draft amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations (there are five separate regulations that we’re going to collectively call regulations here for simplicity’s sake). This article is intended to give a high-level summary of the proposed amendments as they relate to the real estate industry.

This article should not be considered advice (legal, tax or otherwise). That said, any of the content shared here may be used and shared freely – you don’t need our permission. While we’d love for content that we’ve written to be attributed to us, we believe that it’s more important to get reliable information into the hands of community members (meaning that if you punk content that we wrote, we may think you’re a jerk but we’re not sending an army of lawyers).

Finally, we want to encourage the community to discuss the proposed changes and submit meaningful feedback for policy makers. The comment period for this draft is 90 days. After this, the Department of Finance takes the feedback to the bat cave and drafts a final version of the amendments. From the time that the final version is published, the draft indicates that there will be 12 months of transition to comply with the new requirements.

What does this mean for my business?

While there are quite a number of proposed changes (the draft is about 200 pages in length), some are likely to have more of an impact on for real estate developers, brokers and sales representatives than others. We’ve summarized the changes that we expect to have the most impact below. Remember these are just proposed changes so there is no need to update your compliance material just yet.

What’s New?

Virtual Currency:

While there are not many proposed amendments that will introduce new requirements for real estate developers, brokers and sales representatives the draft regulations introduce reporting requirements for the receipt of CAD 10,000 or more of virtual currency. These basically are the same as large cash reporting obligations and will require reporting entities to maintain a large virtual currency transaction record.

The requirements for reporting and recordkeeping for virtual currency will be very similar to cash reporting requirements.

What existing requirements are changing?

24-hour rule:

The draft regulations clarify that multiple transactions performed by or on behalf of the same customer or entity within a 24-hour period are considered a single transaction for reporting purposes when they total CAD 10,000 or more. Only one report would need to be submitted to capture all transactions that aggregate to CAD 10,000 or more. For real estate developers, brokers and sales representatives this would apply to recipient of cash deposits. Specifically, this will apply to large cash transactions or CAD 10,000 or more. 

Identification:

The draft regulations replace the word “original” with “authentic” and states that a document used for verification of identity must be “authentic, valid and current. This would allow for scanned copies of documentation and/or for software that can authenticate identification documents to be used for the dual process method for real estate developers, brokers and sales representatives that identify clients in a non-face-to-face manner. Another change, related to measures for verifying identity, is that the word “verify” has been replaced with “confirm” and “ascertain” has been replaced with confirm. What this will mean exactly is still unclear (FINTRAC will need to provide more guidance once the final amendments are released). We are hopeful that it will allow for easier customer identification – especially for customers outside of Canada.

Records:

There have been some changes to the details that must be recorded in records that real estate broker or sales representative must maintain. In particular, the draft regulations add the requirement that information records must contain details of every person or entity for which they act as an agent or mandatary in respect of the purchase or sale of real property. Under the existing regulations information related to the person or entity purchasing real estate only.

Risk Assessment:

Under current regulations, reporting entities are required to assess the risks associated with its business and develop a risk assessment specific to your situation. For real estate developers, brokers and sales representatives a risk assessment must address the following four areas:

  • Products, services, and delivery channels (to better reflect the reality of the real estate sector, this workbook will now only refer to services and delivery channels);
  • Geography;
  • Clients and business relationships; and
  • Other relevant factors

A proposed amendment would require all reporting entities to assess the risk related the use of new technologies, before they are implemented.  This has been a best practice since the requirement to conduct a risk assessment came into force, but this change would make this a formal requirement.

Suspicious Transaction Reporting:

Under current regulations if a reporting entity has reasonable grounds to suspect that a transaction or attempted transaction is related to money laundering or terrorist financing, a report must be submitted to FINTRAC within 30 days of the date that a fact was discovered that caused the suspicion. The revised regulations add to this requirement by stating:

“The person or entity shall send the report to the Centre within three days after the day on which measures taken by them enable them to establish that there are reasonable grounds to suspect that the transaction or attempted transaction is related to the commission of a money laundering offence or a terrorist activity financing offence.

This would require reports to be submitted to FINTRAC within three days after the reporting entity conducts an analysis that established reasonable grounds for suspicion.

Schedules:

The draft regulations introduce changes to reporting schedules, requiring more detailed information to be filed with FINTRAC then previously was required. This is in addition to including information that is marked as optional, if a reporting entity has the information. As it relates real estate developers, brokers and sales representatives these changes will impact attempted suspicious and suspicious transaction reporting, terrorist property reporting and large cash reporting. Some of the additional proposed data fields are:

  • every reference number that is connected to the transaction,
  • every other known detail that identifies the receipt (of cash for large cash transactions),
  • type of device used by person who makes request online,
  • number that identifies device,
  • internet protocol address (IP address) used by device,
  • person’s user name, and
  • date and time of person’s online session in which request is made.

Such changes may be onerous for reporting entities, especially for transactions that are conducted online.

Training:

Under current regulation, if real estate developers, brokers and sales representatives use agents, mandataries or other persons to act on their behalf, they must develop and maintain a written, ongoing compliance training program for those agents, mandataries or other persons. The draft regulations introduces an additional requirement in which there must be a documented plan for the ongoing compliance training program and delivering of that the training.

What’s Next?

If you’ve read this far, congratulations and thank you!

We hope that you will contribute your thoughts and comments. You can do this by contacting the Department of Finance directly. Their representative on this file is:

Lynn Hemmings
Acting Director General
Financial Systems Division
Financial Sector Policy Branch
Department of Finance
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Email: fin.fc-cf.fin@canada.ca

If you would like assistance drafting a submission, or have questions that you would like Outlier to answer, please get in touch!

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