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Amending the Amendments! 2020 AML Changes for Real Estate

Background

Back on July 10, 2019, the highly anticipated final version of the amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations were published. However, on June 10, 2020, further amendments to those amended regulations were published in the Canada Gazette. To make reading these changes a little easier, we have created a redlined version of the regulations, with new content showing as tracked changes, which can be found here.

The purpose of this round of amendments is to better align measures with international standards and level the playing field across reporting entities by applying stronger customer due diligence requirements and beneficial ownership requirements to designated non-financial businesses and professions (DNFBPs). The amendments come into force on June 1, 2021.

We have summarized the changes that will have an impact on real estate developers, brokers, and sales representatives below.

Business Relationship

One of the most significant proposed changes for real estate developers, brokers, and sales representatives is related to the definition of a business relationship. Currently, a business relationship is defined as:

If a person or entity does not have an account with you, a business relationship is formed once you have conducted two transactions or activities for which you have to:

  • verify the identity of the individual; or
  • confirm the existence of the entity.

The amendments change the definition for real estate developers, brokers, and sales representatives to the first time that the person or entity is required to verify the identity of the client.

For business relationships, a reporting entity must:

  • keep a record of the purpose and intended nature of the business relationship;
  • conduct ongoing monitoring of your business relationship with your client to:
    • detect any transactions that need to be reported as suspicious;
    • keep client identification and beneficial ownership information, as well as the purpose and intended nature records, up-to-date;
    • reassess your client’s risk level based on their transactions and activities; and
    • determine if the transactions and activities are consistent with what you know about your client;
  • keep a record of the measures you take to monitor your business relationships and the information you obtain as a result.

 This change in definition also means that ongoing monitoring must be applied for the following purposes:

  1. detecting any transactions that are required to be reported;
  2. keeping client identification information and the information up to date;
  3. reassessing the level of risk associated with the client’s transactions/activities; and
  4. determining whether transactions or activities are consistent with the information obtained about their client, including the risk assessment of the client.

PEP

The amendments will require real estate developers, brokers, and sales representatives to make a Politically exposed persons (PEP) determination when they enter into a business relationship (as defined above) with a client.

In addition, they will also be required to take reasonable measures to determine whether a client from whom they receive an amount of CAD 100,000 or more is a PEP.

If a positive determination is made, the following records must be kept:

  1. the office or position, and the organization or institution, in respect of which the person is determined to be a politically exposed foreign person, a politically exposed domestic person or a head of an international organization, or a family member of, or a person who is closely associated with, one of those persons;
  2. the date of the determination; and
  3. the source, if known, of the person’s wealth.

Beneficial Ownership

The amendments will require real estate developers, brokers, and sales representatives to comply with existing beneficial ownership requirements that apply to other reporting entities.

This means when identifying an entity, a reporting entity needs to collect the following information for all Directors and individuals who own or control, directly or indirectly, 25% or more of the organization:

  • Their full legal name;
  • Their full home address; and
  • Information establishing the ownership, control, and structure of the entity.

A record of the reasonable measures to confirm the accuracy of the information, when it is first obtained and in the course of ongoing monitoring of business relationships, must be retained.

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!

Regulations for Dealers in Virtual Currency – June 2020

Effective June 1, 2020, entities engaged in Virtual Currency activities are considered as Money Services Businesses (MSBs), and are required to register with FINTRAC and comply with MSB obligations under amendments made to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) that were released on July 19, 2019. Those amendments also require, as of June 1, 2021, reporting large virtual currency transactions. The Department of Finance has since made further amendments to those amended regulations, published in the Canada Gazette on June 10, 2020.

To make reading these changes a little easier, we have created a redlined version of the regulations, with the most recent changes showing as tracked changes, which can be found here.

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 f 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.

Current Obligations

Client Identification:

Dealers in Virtual Currency must identify individuals and confirm the existence of entities when they:

  • Remit or transmit funds (see definition above) of $1,000 or more at the request of a customer;
  • Conduct a foreign exchange transaction of $3,000 or more;
  • Enter into an ongoing service agreement with a customer (conduct transactions for a customer that is an entity);
  • Conduct a large cash transaction; and
  • Must take reasonable measures to identify individuals who conduct or attempt to conduct a suspicious transaction.

As of June 2021, there will be an additional requirement to identify virtual currency exchange transactions valued at CAD 1,000. This will include exchanging fiat and virtual currency, as well as exchanges between virtual currencies.

Information on acceptable methods to identify clients can be found on FINTRAC’s website. 

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:

  • 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.
  • 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 completed attempted transaction is related to money laundering or terrorist financing, it must be reported to FINTRAC “as soon as practicable” of the discovery of a fact that led you to determine that the transaction was suspicious.

FINTRAC defines “as soon as practicable” in its Glossary as follows:

A time period that falls in-between immediately and as soon as possible within which a suspicious transaction report (STR) be submitted to FINTRAC. In this context, the report must be completed promptly, taking into account the facts and circumstances of the situation. While some amount of delay is permitted, it must have a reasonable explanation. The completion and submission of the report should take priority over other tasks.

FINTRAC has released more specific guidance on what “measures” enable reporting entities to have “reasonable grounds to suspect”.

More information on suspicious transaction reporting can be found on FINTRAC’s website.

  • 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 the United Nations Security Council consolidated list. 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).

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 which is described in your compliance documentation.

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.

Amendments to the Amendments

The amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) that were published in the Canada Gazette on June 10, 2020 create the following obligations for dealers in Virtual Currency:

Travel Rule

One of the most significant changes that will impact Virtual Currency Dealers as MSBs relates to a new requirement for records to be kept on all virtual currency transfers of CAD 1,000 or more.

The record must contain the following:

  1. include with the transfer, the name, address and, if any, the account number or other reference number of both the person or entity that requested the transfer and the beneficiary; and
  2. take reasonable measures to ensure that any transfer received includes the information referred to in paragraph (a) above.

Where the information required was not obtained, MSBs must have written risk-based policies and procedures for determining if the transaction should be suspended, rejected, or if another follow-up measure should be taken.

PEP

In addition to the existing requirement for MSBs to take reasonable measures to determine whether a client from whom they receive an amount of CAD 100,000 or more is a Politically exposed person (PEP), the amendments will require MSBs to make a PEP determination when they establish a business relationship with a client.

A reminder that a business relationship is defined as:

If a person or entity does not have an account with you, a business relationship is formed once you have conducted two transactions or activities for which you have to:

  • verify the identity of the individual; or
  • confirm the existence of the entity.

MSBs will also periodically need to take reasonable measures to determine whether a person with whom they have a business relationship is a PEP. We will have to await guidance from FINTRAC on this, but our guess is the frequency for determination will align to the frequency for customer information and identification updates.

Given the definition of a business relationship, we do not expect this requirement to be overly burdensome. If you currently conduct list screening, PEP screening could easily be added to that process. You are also able to ask the customer directly, while presenting the definition of a PEP, and record their response.

If a positive determination is made, the following records must be kept:

  1. the office or position, and the organization or institution, in respect of which the person is determined to be a politically exposed foreign person, a politically exposed domestic person or a head of an international organization, or a family member of, or a person who is closely associated with, one of those persons;
  2. the date of the determination
  3. the source, if known, of the person’s wealth;
  4. the risk rating; and
  5. the name of the member of senior management who reviewed the client, and the date the client was approved.

Other Relevant Blog Posts for Dealers in Virtual Currency

What’s happening in the VC community? 

Messaging Standard Overview

In October 2018, the Financial Action Task Force (FATF) adopted changes to its Recommendations to explicitly clarify that they apply to financial activities involving virtual assets (VA), effectively expanding the scope of the Recommendations to apply to virtual asset service providers (VASPs) and other obliged entities that engage in or provide covered VA activities.

“There exists a need for VASPs to adopt uniform approaches and establish common standards to enable them to meet their obligations resulting from the FATF Recommendations as they apply to affected entities”.

The implementation of obligations such as the travel rule for virtual currency transactions, in the majority of cases, would require an accompanying technology. To tackle issues such as this, a cross-industry, cross-sectoral joint working group of technical experts was formed in December 2019 and a new technical standard developed by the group.  The Joint Working Group on interVASP Messaging Standards (JWG) was established  by three leading international industry associations representing VASPs:
Chamber of Digital Commerce
Global Digital Finance
International Digital Asset Exchange Association 

We will have to wait for FINTRAC guidance to see if such a standard is provided as an example.

More information on the working group can be found here.

To download a copy of the standard anonymously, use this link:

DOWNLOAD THE STANDARD

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!

Amending the Amendments! 2020 AML Changes for MSBs

Background

Back on July 10, 2019, the highly anticipated final version of the amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations were published. However, on June 10, 2020, further amendments to those amended regulations were published in the Canada Gazette. To make reading these changes a little easier, we have created a redlined version of the regulations, with new content showing as tracked changes, which can be found here.

The purpose of this round of amendments is to better align measures with international standards and level the playing field across reporting entities by applying stronger customer due diligence requirements and beneficial ownership requirements to designated non-financial businesses and professions (DNFBPs). The amendments come into force on June 1, 2021.

We have summarized the changes that will have an impact on Money Services Businesses (MSB)s below.

Travel Rule

One of the most significant changes that will impact MSBs and Foreign Money Services Businesses (FMSB)s relates to a new requirement for records to be kept on all virtual currency transfers of CAD 1,000 or more.

The record must contain the following:

  1. include with the transfer, the name, address and, if any, the account number or other reference number of both the person or entity that requested the transfer and the beneficiary; and
  2. take reasonable measures to ensure that any transfer received includes the information referred to in paragraph (a) above.

Where the information required was not obtained, MSBs and FMSBs must have written risk-based policies and procedures for determining if the transaction should be suspended, rejected or if another follow-up measure should be taken.

PEP

In addition to the existing requirement for MSBs and FMSBs to take reasonable measures to determine whether a client from whom they receive an amount of CAD 100,000 or more is a Politically exposed person (PEP), the amendments will require MSBs and FMSBs to make a PEP determination when they establish a business relationship with a client.

A reminder that a business relationship is defined as:

If a person or entity does not have an account with you, a business relationship is formed once you have conducted two transactions or activities for which you have to:

  • verify the identity of the individual; or
  • confirm the existence of the entity.

MSBs and FMSBs will also periodically need to take reasonable measures to determine whether a person with whom they have a business relationship is a PEP. We will have to await guidance from FINTRAC on this, but our guess is the frequency for determination will align to the frequency for customer information and identification updates.

Given the definition of a business relationship, we do not expect this requirement to be overly burdensome. If you currently conduct list screening, PEP screening could easily be added to that process. You are also able to ask the customer directly, while presenting the definition of a PEP, and record their response.

If a positive determination is made, the following records must be kept:

  1. the office or position, and the organization or institution, in respect of which the person is determined to be a politically exposed foreign person, a politically exposed domestic person or a head of an international organization, or a family member of, or a person who is closely associated with, one of those persons;
  2. the date of the determination; and
  3. the source, if known, of the person’s wealth.

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!

Amending the Amendments! 2020 AML Changes for Jewellers

Background

Back on July 10, 2019, the highly anticipated final version of the amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations were published. However, on June 10, 2020, further amendments to those amended regulations were published in the Canada Gazette. To make reading these changes a little easier, we have created a redlined version of the regulations, with new content showing as tracked changes, which can be found here.

The purpose of this round of amendments is to better align measures with international standards and level the playing field across reporting entities by applying stronger customer due diligence requirements and beneficial ownership requirements to designated non-financial businesses and professions (DNFBPs). The amendments come into force on June 1, 2021.

We have summarized the changes that will have an impact on Dealers in Precious Metals and Stones (DPMS) below.

PEP

The amendments will require DPMSs to make a Politically exposed persons (PEP) determination when they enter into a business relationship with a client. In addition, they will also be required to take reasonable measures to determine whether a client from whom they receive an amount of CAD 100,000 or more is a PEP.

A reminder that a business relationship is defined as:

If a person or entity does not have an account with you, a business relationship is formed once you have conducted two transactions or activities for which you have to:

  • verify the identity of the individual; or
  • confirm the existence of the entity.

Given the definition of a business relationship, we do not expect this requirement to be overly burdensome. If you currently conduct list screening, PEP screening could easily be added to that process.

If a positive determination is made, the following records must be kept:

  1. the office or position, and the organization or institution, in respect of which the person is determined to be a politically exposed foreign person, a politically exposed domestic person or a head of an international organization, or a family member of, or a person who is closely associated with, one of those persons;
  2. the date of the determination; and
  3. the source, if known, of the person’s wealth.

Beneficial Ownership

The amendments will require DPMSs to comply with existing beneficial ownership requirements that apply to other reporting entities.

This means when identifying an entity, a reporting entity needs to collect the following information for all Directors and individuals who own or control, directly or indirectly, 25% or more of the organization:

  • Their full legal name;
  • Their full home address; and
  • Information establishing the ownership, control, and structure of the entity.

A record of the reasonable measures to confirm the accuracy of the information, when it is first obtained and in the course of ongoing monitoring of business relationships, must be retained.

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!

Amending the Amendments!

Background

Back on July 10, 2019, the highly anticipated final version of the amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations were published. However, on February 15, 2020, further proposed amendments to those amended regulations was published in the Canada Gazette. To make reading these changes a little easier, we have created a redlined version of the regulations, with new content showing as tracked changes, which can be found here.

The Regulatory Impact Statement for this round of proposed changes states the following: “The proposed amendments to the regulations would strengthen Canada’s AML/ATF Regime, align measures with international standards and level the playing field across reporting entities by applying stronger customer due diligence requirements and beneficial ownership requirements to designated non-financial businesses and professions (DNFBPs); modifying the definition of business relationship for the real estate sector; aligning customer due diligence measures for casinos with international standards; aligning virtual currency record-keeping obligations with international standards; clarifying the cross-border currency reporting program; clarifying a number of existing requirements; and making minor technical amendments”. The proposed amendments are expected to come into force on June 1, 2021.

As with all proposed changes, there is a comment period. This comment period is much shorter than the last one, at only 30 days. For anyone interested in commenting on the proposed changes, comments are to be addressed to Lynn Hemmings, Director General, Financial Crimes and Security Division, Financial Sector Policy Branch, Department of Finance, 90 Elgin Street, Ottawa, Ontario K1A 0G5 or email: fin.fc-cf.fin@canada.ca.

While these are proposed changes, guidance from FINTRAC related to the amendments to regulation would hopefully be seen ahead of the coming into force dates of the final version.

We have summarized what this could mean for your business below.

Money Services Businesses

PEP

The most significant proposed change for Money Services Businesses (MSB)s is related to Politically exposed persons (PEP) determinations. Currently, a PEP determination must be made for international EFTs of CAD 100,000 or more. The proposed regulations will require MSBs to make a PEP determination when the MSB enters into a business relationship with a person.

If you currently conduct list screening, PEP screening could easily be added to that process.

Dealers in Virtual Currency

Travel Rule

For dealers in virtual currency, there is an additional proposed requirement on top of the requirements that were published in the last round of AML changes.  The proposed amendments add the requirement for records to be kept for virtual currency transfers of CAD 1,000 or more.

The record must contain the following:

  1. include with the transfer, the name, address and, if any, the account number or other reference number of both the person or entity that requested the transfer and the beneficiary; and
  2. take reasonable measures to ensure that any transfer received includes the information referred to in paragraph (a) above.

If the information required is not obtained, a determination of whether the transaction should be suspended or rejected will need to be made.

Given the nature of virtual currency transfers, it will be interesting to see how this requirement plays out, as currently, there are no technology solutions (that we are aware of) that would solve for this.

A reminder that dealers in virtual currency will be considered MSBs as of June 1, 2020. Check out our blog post for a full list of regulatory requirements related to dealers in virtual currency.

Real Estate

Business Relationship

One of the most significant proposed changes for real estate developers, brokers and sale representatives is related to the definition of a business relationship. Currently, a business relationship is defined as:

If a person or entity does not have an account with you, a business relationship is formed once you have conducted two transactions or activities for which you have to:

  • verify the identity of the individual; or
  • confirm the existence of the entity.

The proposed amendments will change that definition for real estate developers, brokers and sale representatives to only one transaction.

For business relationships, a reporting entity must:

  • keep a record of the purpose and intended nature of the business relationship;
  • conduct ongoing monitoring of your business relationship with your client to:
    • detect any transactions that need to be reported as suspicious;
    • keep client identification and beneficial ownership information, as well as the purpose and intended nature records, up-to-date;
    • reassess your clients risk level based on their transactions and activities; and
    • determine if the transactions and activities are consistent with what you know about your client;
  • keep a record of the measures you take to monitor your business relationships and the information you obtain as a result.

We will have to wait for guidance to see how ongoing monitoring obligations applies to the real estate sector if this change takes effect.

PEP

The proposed amendments will require real estate developers, brokers and sale representatives to make a Politically exposed persons (PEP) determination when they enter into a business relationship (as defined above) with a client. In addition, they will also be required to take reasonable measures to determine whether a client from whom they receive an amount of CAD 100,000 or more is a PEP.

Beneficial Ownership

The proposed amendments will require real estate developers, brokers and sale representatives to comply with existing beneficial ownership requirements that apply to other reporting entities.

This means when identifying an entity, a reporting entity needs to collect the following for all Directors and individuals who own or control, directly or indirectly, 25% or more of the organization:

  • Their full legal name;
  • Their full home address; and
  • Their role and/or ownership stake in the organization.

Given the obligation is to obtain, rather than verify, such information, we do not expect this requirement to be overly burdensome for the real estate sector.

Dealers in Precious Metals and Stones

PEP

Dealers in Precious Metals and Stones (DPMS)s will be required to make a PEP determination when they enter into a business relationship with a client. In addition, a DPMS will be required to take reasonable measures to determine whether a person from whom they receive an amount of CAD 100,000 or more is a PEP.

A reminder that a business relationship is defined as:

If a person or entity does not have an account with you, a business relationship is formed once you have conducted two transactions or activities for which you have to:

  • verify the identity of the individual; or
  • confirm the existence of the entity.

Given the definition of a business relationship, we do not expect this requirement to be overly burdensome. If you currently conduct list screening, PEP screening could easily be added to that process.

Beneficial Ownership

The proposed amendments will required DPMSs to comply with existing beneficial ownership requirements that apply to other reporting entities.

This means when identifying an entity, a reporting entity needs to collect the following for all Directors and individuals who own or control, directly or indirectly, 25% or more of the organization:

  • Their full legal name;
  • Their full home address; and
  • Their role and/or ownership stake in the organization.

Given the obligation is to obtain, rather than verify, such information, we do not expect this requirement to be overly burdensome for the DPMS sector.

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!

Regulations Amending the Regulations February 15, 2020- Redlined Versions

The following red-lined versions have been created to reflect the amendments to Canadian anti-money laundering (AML) regulations published in the Canada Gazette on February 15, 2020. You can also read our article “Amending the Amendments!” for a summary of the proposed changes by industry.

Redlined versions of all the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations are listed below for download.

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

Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Please click the link below for downloadable PDF file.
Amending_the_Regulations_Amending_Certain_Regulations_Made_Under_the_Proceeds_of_Crime_July_2019 – Redlined_Feb_2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

Please click the links below for downloadable pdf files.
PCMLTF_July_2019_Redlined_Full_July_2019 – Redlined_Feb_2020

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

Please click the links below for downloadable pdf files.
PCMLTF_Suspicious_Transaction_Reporting_Regulations_July_2019 – Redlined_Feb_2020

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_Feb_2020

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

Please click the link below for a downloadable pdf file.
PCMLTF_Administrative_Monetary_Penalties_Regulations_July_2019 – Redlined_Feb_2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Cross-Border Currency and Monetary Instruments Reporting Regulations

Please click the link below for a downloadable pdf file.
PCMLTF_Cross-Border_Currency_and_Monetary_Instruments_Reporting_Regulations_July_2019 – Redlined_Feb_2020

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 Changes for MSBs

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 MSBs. If you’re the type that likes to read original legislative text, you can find it here. We also created a redlined 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 MSBs).
  • June 1, 2021: all other regulatory amendments.

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

Guidance from FINTRAC, related to the changes in regulation, 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).

Foreign MSBs

In the past, foreign MSBs only had to comply with Canadian AML requirements if they had a “real and substantial connection” to Canada. A “real and substantial connection” was defined in FINTRAC policy interpretations as having one or more of the following statements be true:

  • Is the business incorporated in Canada;
  • Does the business have agents in Canada;
  • Does the business have physical locations in Canada; and/ or
  • Does the business maintain a bank account or a server in Canada.

The final amendments create obligations for foreign businesses that direct and provide certain services to people located in Canada, via the Internet. If you are a foreign MSB, check out our blog on full requirements as they relate to a foreign MSB with dealings in Canada.

What Does This Mean For My Business?

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

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

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

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. This has been interpreted to mean that if the customer receives a utility bill in the mail, they must send you the original paper (not scanned or copied) document. 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 documents.

Other changes to the identity verification requirements are as follows:

  • A customer’s identity must be verified if they are the beneficiary of an international EFT of CAD 1,000 or more;
  • For credit file verification (single source) the credit file information must now be derived from more than one source; and
  • 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.

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.

FINTRAC Reporting

Reporting EFTs of CAD 10,000 or More

If you conduct international remittance transactions at the request of your customers, the requirement to report transactions of CAD 10,000 or more will now be your responsibility, not your financial services provider.

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. So, if you initiate a transaction at your customer’s request (outgoing transaction), or provide final receipt of payment to your customer (incoming transaction), it will be your obligation to report that transaction to FINTRAC.

Virtual Currency Reporting

If you 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 transaction to FINTRAC. These are basically the same as Large Cash Transaction reporting obligations, including making a determination of whether the person is acting on behalf of a third-party. There will also be the requirement for reporting entities to maintain a Large Virtual Currency Transaction record.

For more information on the full scope of updates specific to virtual currency, please check out our full article here.

The 24-Hour Rule

The final regulations clarify that 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.

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 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 (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.

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 may 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 needed 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.

Ongoing Compliance Training

The amended regulations have introduced a requirement to 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.

Risk Assessment Obligations

With the last round of AML changes, we saw the addition of “New Technologies and Developments” as a newly added category to the Risk-Based Approach requirements. This round of changes makes the next logical progression, which is the obligation to assess the money laundering and terrorist financing risk of any product, delivery channel or new technology before implementation. Meaning, if you are looking to take your business online and are going to use this fancy, new ID software, you had better take careful inventory and document where your risks are, and be sure the appropriate controls have been put in place, before going live but many MSBs have already implemented this best practice.

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.

Foreign Money Services Business in Canada

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 released in the Canada Gazette. With this round of changes, Foreign Money Services Businesses (MSBs) will be subject to Canadian AML obligations.  This article is intended to give a high-level summary of the requirements as they relate to Foreign MSBs.

While foreign MSBs will have until June 1, 2020 to become compliant with Canadian requirements, it is highly recommended that you start budgeting and planning from now. It is expected that our regulator, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), will allow foreign MSBs to register ahead of this date.

Note 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 Is A Money Services Business?

MSBs are considered reporting entities under the law in Canada.  This means that they must comply with certain requirements and answer to their regulator.  You are a money services business (MSB) in Canada if your business offers any of the following services to the public:

  • Foreign exchange dealing;
  • Remitting or transmitting funds;
  • Issuing or redeeming money orders, traveller’s cheques and other negotiable instruments;
  • Dealing in virtual currencies.

In the past, foreign MSBs only had to comply with Canadian AML requirements if they had a “real and substantial connection” to Canada. A “real and substantial connection” was defined in FINTRAC policy interpretations as having one or more of the following statements be true:

  • Is the business incorporated in Canada;
  • Does the business have agents in Canada;
  • Does the business have physical locations in Canada; and/ or
  • Does the business maintain a bank account or a server in Canada.

As part of the recent AML amendments, foreign businesses that conduct any of the above transactions, and your services are directed to persons in Canada, Canadian AML obligations will apply.  You will need to be aware of the requirements under Canadian law as they apply to their Canadian customers.

Compliance Program

Under regulation, you will be required to have an anti-money laundering (AML) and counter terrorist financing (CTF) program that consists of these five elements:

  • Written policies and procedures: these list your responsibilities under Canadian law, and what you are doing to meet them.
  • A documented Risk Assessment: a document that describes and assesses the risk that your business could be used to launder money or finance terrorism.
  • The appointment of a Compliance Officer: the person who is ultimately responsible to develop and maintain your Canadian AML and CTF compliance program. Note the person appointed does not have to be located in Canada.
  • AML Compliance Effectiveness Reviews: testing and reporting completed at least every two years that assesses how well your compliance program is working.
  • Training: A documented training plan, and conducting, at least annually, testing to ensure that staff understands their roles and responsibilities as it relates to Canadian law.

Operational Compliance

In addition to a documented program, you will need to ensure you operate in a compliant manner with various requirements as it relates to your Canadian customers. This includes:

  • Collecting and recording client identification information;
  • Know your customer (KYC) information;
  • Reporting certain types of transactions to regulators and government agencies;
  • Maintaining appropriate registration and licensing; and
  • Keeping records.

Client Identification

As an MSB, you will be required to identify Canadian customers in accordance with Canadian law. You must verify the identity of a person who requests the following:

  • requests that they issue or redeem money orders, traveller’s cheques or similar negotiable instruments in an amount of CAD 3,000 or more;
  • requests that they initiate an electronic funds transfer of CAD 1,000 or more;
  • requests that they exchange an amount of CAD 3,000 or more in a foreign currency exchange transaction;
  • requests that they transfer an amount of CAD 1,000 or more in virtual currency;
  • requests that they exchange an amount of CAD 1,000 or more in a virtual currency exchange transaction; or
  • is a beneficiary of an international electronic funds transfer of CAD 1,000 or more, or of a transfer of an amount of CAD 1,000 or more in virtual currency, to whom they make the remittance.

As part of the recent AML changes, the identification methods that can be used to verify identification have been updated and modernized. Previously, a document used to verify identity was required to be “original, valid and current”. You can now confirm the identity of a customer by relying on an identity document where it is “authentic, valid, and current”, meaning you can confirm identification using acceptable documents, presented in an electronic means, so long as it can be authenticated.

There are other methods to verify a customer’s identity, which include referring to their Canadian credit file (Equifax or TransUnion), provided it has been in existence for at least three years, or a dual process method which involves referring to information from two reliable and independent sources.

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. This means certain details must be collected for directors, trustees, beneficiaries of trusts, and anyone that owns or controls 25% or more of an entity.

Registration

You must register as a Foreign MSB with FINTRAC before June 1, 2020. The process itself is relatively straightforward and begins with a pre-registration form. 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;
  • Certain information about the directors of the company and every person who owns or controls 20% or more.
  • 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.

Once registered, the registration must be maintained, and you must:

  • Keep information up to date;
  • Respond to requests for, or to clarify, information in the prescribed form and manner, within 30 days;
  • Renew your registration before it expires; and
  • Let FINTRAC know if you 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.

Reporting

Foreign MSBs are required to report certain transactions to FINTRAC where Canadians are involved, regardless if the funds or the instructions to transfer funds involve Canada. Foreign MSBs will be required to report to FINTRAC the following transactions:

  • The receipt, from a person or entity in Canada, of CAD 10,000 or more in cash;
  • The initiation, at the request of a person or entity in Canada, of an EFT of CAD 10,000 or more, if the EFT is sent or is to be sent from one country to another;
  • The final receipt of an EFT of CAD 10,000 or more, if the EFT was sent from one country to another and the beneficiary is in Canada;
  • The receipt from a person or entity in Canada of CAD 10,000 or more in virtual currency;
  • Any suspicious or attempted suspicious transactions; and
  • Any terrorist property.

We’re Here To Help

If you are a foreign MSB that deals in virtual currency, please check out our blog. If you have any questions related to your compliance obligations in Canada, or need assistance in developing your Canadian AML compliance program, please get in touch!

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.

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