Banks, money service businesses and other firms face challenges complying with major changes in Canada’s Anti-Money Laundering (AML) regulations.

The regulatory amendments, under the Proceeds of Crime Money Laundering & Terrorism Financing Act (PCMLTFA) of 2019, went into effect in June 2021, with key parts of the reporting rules still being phased in over the coming months by FINTRAC, Canada’s financial intelligence agency.  The rules set many new and expanded requirements for how reporting entities (REs) must track, verify, and report on financial transactions.

 

Changing AML Regulations

 

Who will this impact?

The regulations apply not only to banks and money service businesses (MSBs), but also to casinos, virtual currency exchanges, real estate brokers and firms, life insurance companies and others.  Notably, MSBs that do not have offices or staff in Canada, designated as foreign money services businesses (FMSBs) are now subject to the rules if they provide services to Canadians.

 

Some significant AML regulatation changes include:

  • Virtual currency (VC) obligations for all REs, including submitting Large Virtual Currency Transaction Reports (LVCTRs) and Travel Rule requirements
  • Expanding and mandating more rigorous efforts to verify the identities of beneficial owners, and the sharing of more information on those beneficiaries
  • Expanding to all types of REs politically exposed person (PEP) and head of an international organization (HIO) obligations
  • Expanding the record-keeping requirements to intermediaries in electronic funds transfers (ETFs)
  • Redefining reporting requirements under the 24-hour rule to require REs to aggregate transactions that may total or exceed $10,000 (Canadian)

FINTRAC has said they will “exercise flexibility in assessing and enforcing compliance with certain record keeping and reporting obligations” of the PCMLTFA. From June 1, 2021, through the end of the month, REs have been required to keep track of reportable transactions, although they will only need to submit LVCTRs beginning on December 1, 2021. FINTRAC is still preparing updated forms and reporting processes that REs will be required to use, as well as an updated Assessment Manual, due for public release in March 2022; evaluations of compliance with the amended regulations are expected to begin in April 2022.

FINTRAC is committed to working with businesses to help them understand and comply with their obligations under the Act. At the same time, we will be firm in ensuring that businesses continue to do their part and we will take appropriate actions when they are needed.

Sarah Paquet, Director & CEO of FINTRAC.

In this spirit, FINTRAC does expect any RE to file a voluntary self-declaration of non-compliance (VSDONC) if it is over-reporting or under-reporting during the transitional period.

After a several year hiatus, due to two significant federal court challenges to the agency’s enforcement policies, FINTRAC overhauled the program and established a new set of guidance and policies in 2019. Since then, the regulator has steadily built a track record of bringing a number of violators to task and issuing fines.

 

Leveraging New AML Technologies

 

In response to the new enforcement environment, many banks and other REs have already begun the process to uplift their compliance programs and monitoring systems. Obligations, particularly around beneficial ownership, and PEPS, for example, increasingly demand the ability to ingest and analyze both external and internal data sources to provide meaningful, dynamic, and actionable intelligence.

 

Additionally, the rise of widespread use of digital currencies continues to present new challenges. The ability to provide a holistic view of a customer and use entity resolution, network generation and advanced analytics is something that is increasingly important for REs to develop in this burgeoning regulatory landscape.  New AML technologies and tools such as these, offer an array of opportunities to help REs be prepared to not only meet the requirements of the PCMLTFA amendments but to improve efficiency, reduce costs and identify hidden risks.

Future-proof your AML investigations with context

In our latest IDC report, discover why over 22% of leading financial institutions have invested in process automation this year and are looking to AI-based tools such as entity resolution to improve financial crime investigation outcomes.

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