AML Act Amendments: Impact on Mortgage Lending Sector
The Canadian government has proposed amendments to the Proceeds of Crime and Terrorist Financing Act (“PCMLTFA”) to enhance Canada’s Anti-Money Laundering (“AML”) and Anti Terrorist Financing (“ATF”) regime. How does this impact the mortgage lending sector?
The proposal was released on February 18, 2023 and will require non-financial institution mortgage lenders and financial entities to incorporate enhanced due diligence measures and monitor correspondent banking relationships. The proposed amendments aim to address concerns raised by the Cullen Commission Report 2022 (the “Cullen Report”) and strengthen Canada’s AML and ATF framework. By expanding the reporting obligations of various entities, the amendments are set to improve the enforcement powers of the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) and refine the overall effectiveness of the regime.
Expansion of Reporting Obligations
Currently, only financial institutions which issue mortgages (such as banks, credit unions and trust and loan companies) are considered “reporting entities” under PCMLTFA. Both the Cullen Report and RCMP revealed that real estate is one of the most significant sectors used for money laundering purposes. The Department of Finance also found an increasing number of mortgages issued by unregulated mortgage lenders. In light of this, the proposed amendments will expand reporting obligations for various entities, including non-financial mortgage lending entities such as mortgage administrators, mortgage brokers and mortgage lenders. Under PCMLTFA, reporting entities are required to comply with AML and ATF regulations and develop and implement compliance programs to identify, monitor, record and report certain types of financial transactions.
Enhancement of FINTRAC’s Enforcement Powers
The amendments will enhance FINTRAC’s enforcement powers by*:
- regulating correspondent banking relationships through requiring financial entities to periodically assess the level of risk associated with the foreign financial institution’s transactions.
- requiring lenders to report certain transactions on an ongoing basis.
- issuing administrative monetary penalties for non-compliance with AML and ATF requirements.
- recovering administrative expenses incurred in regulating compliance with the PCMLTFA through a cost recovery framework.
- introducing an enhanced money service business (“MSB”) registration framework, requiring MSBs to submit additional information to FINTRAC when applying for MSB registration.
*Note: this is a non-exhaustive list of some of the proposed amendments which will enhance FINTRAC’s enforcement powers.
Potential Impact on the Mortgage Lending Sector
The proposed amendments to the PCMLTFA represents an important step forward in Canada’s efforts to combat financial crime. By expanding reporting obligations, enhancing enforcement powers, and improving international cooperation, Canada’s AML and ATF regime has the potential to become more effective in preventing and detecting money laundering and terrorist financing. However, the proposed amendments may also impose an increased administrative burden on non-financial institution mortgage lenders, especially those who do not currently have AML or ATF procedures. Financial institutions will be impacted through new requirements such as the need to evaluate their correspondent banking relationships with foreign entities to ensure they are safe from money laundering or terrorist financing activities.
If you have questions about how to comply with these proposed changes or how we can assist with your mortgage lending services, we would love to hear from you. Please do not hesitate to contact us at 604-629-5400 or via email at [email protected] or by visiting our Vancouver office.
***The above blog post is provided for informational purposes only and has not been tailored to your specific circumstances. This blog post does not constitute legal advice or other professional advice and may not be relied upon as such.**