Now in effect: Regulatory updates impacting reporting entities under Canada’s AML regime

Canada continues to deepen its AML/CFT system by expanding scope of entities subject to obligations and tightening demands for transaction monitoring and reporting. Recent amendments aim to increase transparency regarding beneficial ownership, expand the list of reporting entities, enhance the role of internal control services, and increase accountability of market participants. These changes are part of a broader government strategy to combat financial  felonies, including money laundering, terrorist financing, trade fraud and sanctions evasion.

In this regulatory environment, our services, including AML/СTF support, compliance process structuring and regulatory analysis, are in demand among companies operating in Canadian jurisdiction. ELI Swiss provides client-focused financial, legal and consulting services, drawing on practical experience and qualifications of specialists working with international requirements and supervisory practices.

Expansion of circle of reporting organisations

Previously, Proceeds of Crime and Terrorist Financing Act primarily applied to financial institutions, intermediaries, insurance firms, casinos, MSBs. Now, supplementary categories are included in scope of regulation:

• Factoring firms: organisations that provide financing in exchange for accounts receivable must obey with demands for maintaining interior compliance programmes,  consumer identification and informing.
• Cheque processing and cashing firms: must register as MSBs and conform with standard AML obligations.
• Finance and leasing firms: now considered reportable under certain conditions, including business lease agreements or large consumer transactions.

These categories are included in regulations in order to eliminate previous “regulatory gaps” through which controls could be circumvented.

Transparency of beneficial owners

One of key changes concerns requirements for verifying and reporting on true owners of companies. Now, all informing organisations are mandatory to:

• verify their own data on beneficial owners against federal Corporations Canada registry for corporations under jurisdiction of Canada Business Corporations Act,
• If a significant discrepancy is found between your own data and register, report it to register within 30 days and keep supporting documents.

The concept of “material discrepancy” is defined as inconsistency that could make it impossible to correctly identify actual controlling interests in a company. This measure is designed to increase reliability of information about owners and strengthen mechanisms for identifying schemes that circumvent transparency.

Engaging MSB agents and intermediaries

For MSBs and FMSBs, including providers of money transfer, banknotes exchange, and payment services, stricter validation demands have been introduced for agents and mandataries when identifying legal entities and other organisations.

Basic requirements:

1. preliminary assessment of agent/mandatee’s compliance prior to start of cooperation,
2. re-verification at least every two years,
3. documentary confirmation of assessment and periodic reassessment.

Failure to comply with these demands may result in significant fines and criminal liability.

New responsibilities in real estate sector

Real estate brokers and sales agents have additional responsibilities to identify and document information about unrepresented parties in real estate transactions.

This means that if buyer or seller acts without representative, agent is obliged to:

• verify identity of that party,
• enter information into information register,
• perform procedure for identifying third parties in accordance with AML requirements.

These measures are aimed at closing loopholes that allow anonymous participation in large transactions, which were often used to launder money through the real estate market.

Responsibilities of new entities: ABM and title insurers

Following are included in regulation for first time:

• acquirers of private automated banking machines – organisations that connect private ATMs to payment networks;
• title insurers – companies that provide protection for property rights.

These items are required to comply with Act and related Regulations, including internal risk management programmes, record keeping, and cooperation with FINTRAC during audits.

Expansion of reporting on sanctions and terrorist property

Significant improvement concerned obligations of reporting organisations to notify about property related to sanctions or terrorist activities.

The obligations now extend to cases where property or rights of control over it are subject to measures imposed:

• under Special Economic Measures Act,
• under the Justice for Victims of Corrupt Foreign Officials Act.

Reporting Entities (RE) are required to report immediately to FINTRAC if disclosure obligation arises under Criminal Code, UN Act, SEMA or Magnitsky Act.

Administrative practice and supervision

FINTRAC continues to develop its observance audit practices. The regulator has authority to conduct inspections and impose regulatory fines for non-compliance with new standards. Tightening of controls is accompanied by updates to official guidelines, including on following issues:

• beneficial owner reporting,
• MSB and FMSB registrations,
• requirements for ABMs and title insurers,
• sanctioned property procedures.

Changes to Canada’s AML/CFT regulatory framework are creating stricter and more detailed demands for entities engaged in financial and related transactions. Expansion of scope of  coverage organisations, strengthening of identification mechanisms, new verification and reporting obligations, and direct control mechanisms by FINTRAC all require companies to review and update their compliance programmes. Organisations subject to PCMLTFA should promptly implement relevant processes and assure conformance with new standards to minimise regulatory risks.

FAQ

Which organizations in Canada are considered reporting entities under AML/CTF?

Financial institutions, insurance firms,  intermediaries, securities dealers, money transfer operators, and a number of non-financial organizations are subject to new requirements. List has been expanded and now includes certain types of financing and leasing companies, factoring structures, private ATM operators, and title insurers under certain operating conditions.

What new requirements have been introduced with regard to beneficial owners?

Mentioned organisations are required to verify information about beneficial owners of legal entities and compare it with data from the federal register. If significant discrepancies are identified, competent authorities must be notified and documentary evidence of verification must be provided.

Have changes affected real estate transactions?

Brokers and agents have been given additional responsibilities to identify parties involved in transactions without representation. This includes verifying identities, identifying third parties, and storing supporting data in accordance with legal requirements.

What has changed in terms of sanctions and terrorist property?

Reporting organisations are required to notify regulators of any discovery of property or control over assets that are subject to sanctions regimes or linked to terrorist activities. This obligation applies to several regulatory acts and requires prompt action.