On April 27th, 2022 amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) and associated regulations related to penalties for non-compliance were passed. These amendments were unusual, as there was little prior public consultation, no pre-publication for public comment, and they came into force “on publication” (right away). This is particularly unusual, as new business models were included in the money services business (MSB) and foreign money services business (FMSB) categories.
Specifically, a number of payment services providers (PSPs) became MSBs through a change in the definition of electronic funds transfers (EFTs), and companies that provide crowdfunding services also became MSBs/FMSBs. Historically, these types of changes would have included a pre-publication of the proposed amendment with time for industry participants to comment. There is also, generally, a period of time between the publication of final amendments and the coming into force date (often a year). Absent these buffers, both industry and Canada’s AML regulator, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) have been scrambling to assess the many nuances of the amendments.
While we’ve seen a number of responses to individual applicants for MSB registrations and requests for policy interpretations from FINTRAC, today’s release was the first substantial piece of public guidance from the regulator. For those inclined, it can be accessed here: https://fintrac-canafe.canada.ca/notices-avis/2022-07-21-eng
EFTs and PSPs
What may have seemed like an inconsequential change to the definition of EFTs, which removed certain exemptions, has significant impacts on payment services providers.
“As payment services are not a prescribed service under the PCMLTFA, FINTRAC is taking the position that persons or entities that provide invoice payment services or payment services for goods and services are engaged in the business of remitting or transmitting funds, or dealing in virtual currency.”
FINTRAC’s guidance goes on to define each of these activities and the (very limited) exemptions in each case.
Crowdfunding
While crowdfunding gets a nod in the title of the guidance, it doesn’t really factor into the substance of today’s piece. There are definitions in the amendments themselves in this case, and it’s likely that additional guidance will follow as FINTRAC works through these registrations.
“crowdfunding platform means a website or an application or other software that is used to raise funds or virtual currency through donations. (plateforme de sociofinancement)”
“crowdfunding platform services means the provision and maintenance of a crowdfunding platform for use by other persons or entities to raise funds or virtual currency for themselves or for persons or entities specified by them. (services de plateforme de sociofinancement)”
FINTRAC’s MSB/FMSB Registration Process
The guidance notes that FINTRAC is working on getting businesses registered “over the next several weeks.” As there are many businesses that will be newly registering as MSBs or FMSBs, industry participants should expect some delays. It has also become much more common for FINTRAC to ask for additional details about the business, such as the business model and flow of funds.
There is also a tool to check to see if your business should be registered: https://www.fintrac-canafe.gc.ca/msb-esm/questions/2-eng
If you’re ready to register, you can find an overview of the process and links to the pre-registration form here: https://fintrac-canafe.canada.ca/msb-esm/register-inscrire/reg-ins-eng
Requesting Policy Interpretations
There are two important FINTRAC email addresses. If you have a question specifically about whether or not your business should register, first try msb-esm@fintrac-canafe.gc.ca.
For other policy interpretation requests (or if your request is particularly complex), your best avenue is most likely guidelines-lignesdirectrices@fintrac-canafe.gc.ca.
Enforcement Actions
FINTRAC’s guidance indicates that the regulator will take a reasonable approach to entities required to register.
“We understand that there will be challenges in meeting certain obligations. FINTRAC will be reasonable in its assessment and enforcement approach, and is committed to working with reporting entities subject to the PCMLTFA and its Regulations to increase their awareness, understanding and compliance with their obligations. Please continue to monitor our website for updates or additional guidance.”
This gentle approach will not last indefinitely. If your business needs to be registered (and get its house in order AML compliance-wise), it’s time to get started.
We’re here to help.
Whether you want a hand drafting a policy interpretation request, an AML compliance program, or training for your newly minted AML Compliance Officer (congratulations, I’m sorry), we’re here to help. Please get in touch.