Latest News from FINTRAC

May 25, 2021

Disclaimer: The contents of this article are intended to provide a general understanding of the subject matter. However, this article is not intended to provide legal or other professional advice, and should not be relied on as such.

 

Keeping on top of the latest advisories and guidances from Canada’s FINTRAC. This blog will update with any new information from the regulator as it becomes available.

 

May 21, 2021 – Regulatory amendments in effect on June 1, 2021

FINTRAC has issued a reminder that a number of regulatory amendments will come into force on June 1, 2021 that will create or change obligations for reporting entities (REs) that are subject to the PCMLTA. The amendments include:

  • New and revised definitions
  • Additional foreign money services businesses (FMSBs) obligations
  • Virtual currency (VC) obligations for all REs, including submitting Large Virtual Currency Transaction Reports (LVCTRs) to FINTRAC starting on June 1, 2021
  • Prepaid payment products and accounts obligations for financial entities (FEs)
  • Obligations for life insurance companies, brokers and agents when they are acting as FEs
  • Beneficial ownership obligations extended to all REs
  • Business relationships and ongoing monitoring obligations extended to all REs
  • Politically exposed persons obligations extended to all REs
  • Deemed receipt of funds and VC obligations
  • Repeal of third-party deeming for persons acting on behalf of an employer
  • Certain record keeping obligations

REs are advised to review these changes as FINTRAC will begin assessing compliance with the amended Regulations on April 1, 2022. From June 1, 2021 to March 31, 2022, FINTRAC will assess compliance with the regulatory requirements in effect prior to June 1, 2021.

Below is a quick summary of some of the changes. Please refer to the FINTRAC site for full details.

 

Compliance Program Requirements

The updated guidance requires RE compliance programs to contain references to the travel rule requirements, including risk-based policies and procedures to help determine whether REs should suspend or reject received electronic funds transfers (EFT) or virtual currency transfers.

The program should also include other follow-up measures, including if the transfer does not include the required travel rule information and the RE is unable to obtain the information through reasonable measures.

After June 1, 2021, compliance policies and procedures must also contain specific references to ministerial directive requirements and updates to their training plans.

 

Reporting Large Virtual Currency Transactions

As of June 1, 2021, REs will be required to comply with obligations related to virtual currency (VC) transactions. REs will have to submit a Large Virtual Currency Transaction Report (LVCTR) when they receive an amount of virtual currency equivalent to $10,000 or more in a single transaction (the 24-hour rule may apply).

 

Reporting Electronic Funds Transfers

Reporting entities will have to submit an EFT report to FINTRAC when:

  • The RE is the final recipient of an international EFT of $10,000 or more in a single transaction (the 24-hour rule may apply).
  • The RE initiates, at the request of a person or entity, an international EFT of $10,000 or more in a single transaction (the 24-hour rule may apply).

FINTRAC provides guidance on how to manage the cases where:

  • REs who are the first to receive an EFT from outside of Canada and those that are the last in Canada to send an international EFT no longer have the obligation to report these transactions to FINTRAC
  • REs have identified a reportable international EFT but have not updated or implemented their reporting systems to submit an EFT report to FINTRAC as required under the amended Regulations

 

PEPs and HIOs

As of June 1, 2021, all reporting entity sectors will have politically exposed person (PEP) and head of an international organization (HIO) obligations. These obligations include determining whether a person is a foreign or domestic PEP, HIO, or a family member or close associate of a foreign or domestic PEP, as applicable.

 

Methods to Verify the Identity of Persons and Entities

The guidance has been updated to include the reliance method as a way to identify a person or entity. When relying on measures that were previously taken by another RE or an affiliated foreign entity. The RE’s compliance program must describe the processes it follows when using the reliance method.

Another change to the guidance includes the addition of the simplified identification method to verify the identity of certain prescribed entities. This method is only available to certain REs and only used if the RE considers there is a low risk of a money laundering or terrorist activity financing offence. REs must keep a record of their risk assessment outlining the grounds for their determination that there is a low risk of an offence.

 

Third Party Determination Requirements

The updated guidance states that REs must take reasonable measures to determine whether a third party is involved when they are required to:

  • report a large cash transaction or keep a large cash transaction record;
  • report a large virtual currency transaction or keep a large virtual currency transaction record;
  • keep a signature card or an account operating agreement;
  • keep an information record; or
  • submit a Casino Disbursement

If the RE is not able to make a third party determination but has reasonable grounds to suspect that a third party is involved, they must record information about the person and transaction and keep the information for five years.

 

The 24-hour Rule

FINTRAC has provided new guidance describing when REs must consider multiple transactions within a 24-hour period as a “single transaction”.

On June 1, 2021, the obligation to aggregate multiple transactions when they total $10,000 or more within a consecutive 24-hour window and the transactions are conducted by the same person or entity, on behalf of the same person or entity, or for the same beneficiary (person or entity) will apply only to the reporting of large virtual currency transactions.

The obligations will apply to large cash transactions, EFTs and casino disbursements when FINTRAC updates the report forms for those transactions. Until then, REs should continue to apply the 24-hour rule as outlined in FINTRAC Interpretation Notice No. 4 (pre-June 1, 2021).

 

Prepaid Payment Products and Prepaid Payment Product Accounts

FINTRAC has provided new guidance applicable to financial entities, life insurance companies, and life insurance broker and agent entities that offer prepaid payment products (PPP) or maintain PPP accounts.

PPP accounts are subject to account-opening obligations, just like other types of accounts. As well, transactions carried out with PPPs connected to PPP accounts are subject to transaction obligations.

The guidance goes on to explain the requirements and exceptions applicable to PPP accounts and related transactions including when to verify the identity of persons and entities, methods to verify identities, record keeping requirements, transaction reporting requirements, ongoing monitoring requirements, beneficial ownership requirements and more.

 

Foreign MSBs

The PCMLTFA has been amended to include foreign money services businesses (FMSBs). FMSBs are entities providing MSB services in Canada, do not have a place of business in Canada and provide services to Canadian clients.

FMSBs will now be required to do the following:

  • Register your business with FINTRAC;
  • Report certain financial transactions to FINTRAC;
  • Keep certain records;
  • Identify clients; and
  • Have a compliance program in place.

 

Travel Rule for EFTs and VCs

FINTRAC has provided new guidance applicable to financial entities, MSBs, and casinos regarding the travel rule. The travel rule is the requirement to ensure that specific information is included with the information sent or received in an EFT or a VC transfer. Information received under the travel rule cannot be removed from a transfer.

The following travel rule information when initiating an EFT:

  • the name, address and account number or other reference number (if any) of the person or entity who requested the transfer;
  • the name and address of the beneficiary; and
  • if applicable, the beneficiary’s account number or other reference number.

The required travel rule information for VC transfers is:

  • the name, address and the account number or other reference number (if any) of the person or entity who requested the transfer (originator information); and
  • the name, address and the account number or other reference number (if any) of the beneficiary.

If an EFT or a VC transfer is received that should include the travel rule information but does not, the RE must take reasonable measures to obtain such information. These reasonable measures should be outlined in the RE’s policies and procedures, along with what to do when travel rule information is not obtainable and when the transaction will be allowed, suspended or rejected.

 

As this update indicates, there are many changes coming into effect on June 1, 2021 and REs should consult the FINTRAC site to learn more. For those looking to leverage technology to help them meet these are other regulatory requirements, Alessa is an AML compliance solution with due diligence, transaction monitoring and regulatory reporting capabilities. Contact us to learn more about how we can help.

 

Feb 19, 2021 – Large Virtual Currency Transaction Report Upload Documentation

Reporting entities (REs) dealing in virtual currency (VC) have large virtual currency transaction reporting obligations coming into force on June 1, 2021. REs can begin developing the Large Virtual Currency Transaction Report (LVCTR) Upload and test it from March 15, 2021, to May 28, 2021. The following documentation is available upon request:

  • Reporting Large Virtual Currency Transaction to FINTRAC guidance;
  • Validation rules; and
  • JSON Schema

Please contact guidelines-lignesdirectrices@fintrac-canafe.gc.ca for the documents or for more information.

 

Feb 17, 2021 – Updated Guidance on Ongoing Monitoring, PEPs and Business Relationship Requirements

In anticipation of the guidance that comes into effect on June 1, 2021, FINTRAC has updated a number of guidances. The revised guidance comes into effect on June 1, 2021. Ongoing monitoring requirements answers the following questions:

  1. What is ongoing monitoring?
  2. When must I conduct ongoing monitoring?
  3. When must I conduct enhanced ongoing monitoring?
  4. What are the exceptions to conducting ongoing monitoring?
  5. What records do I need to keep for ongoing monitoring?
  6. When does the requirement for ongoing monitoring end?
  7. When does the requirement for enhanced ongoing monitoring end?

 

The updated guidance on politically exposed persons (PEPs) and heads of international organizations (HIOs) affects financial entities (FEs), securities dealers and casinos (account-based reporting entities) who have obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations. It answers the following questions:

  1. When or for whom must I make a PEP, HIO, family member or close associate determination?
  2. What are the exceptions to making a PEP, HIO, family member or close associate determination?
  3. What measures do I need to take after making a PEP, HIO, family member or close associate determination?
  4. What PEP, HIO, family member or close associate records do I need to keep?

 

The guidance on business relationship requirements answers the following questions:

  1. What is a business relationship?
  2. When do I enter into a business relationship with a client?
  3. Are there circumstances where a business relationship is not created?
  4. How much time do I have to determine if I have entered into a business relationship with a client?
  5. What business relationship records do I need to keep?
  6. When does a business relationship end?

This guidance includes examples of the purpose and intended nature of a business relationship for all reporting entities sectors.

 

Jan 29, 2021 – Update to Ministerial Directive

FINTRAC has updated its Ministerial Directive guidance published on July 25, 2020. The update clarifies the extended obligations that the Ministerial Directive places on reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations.

Additional clarity has been provided in the guidance to ensure that reporting entities understand the types of transactions that should be reviewed, assessed and reported to FINTRAC under the Ministerial Directive.

The change includes electronic funds transfers, remittances or transfers (EFTs) that include an Iranian originating or destination address which may include transactions where the ordering person or entity, beneficiary, or third party details are Iranian; and the transactions made by representatives of the Government of Iran (e.g., transactions on an Embassy of Iran’s bank account in Canada).

The instructions on how to report these transactions and the timeframes for reporting have also been updated.

 

Jan 22, 2021 – Regulatory Amendments Implementation Plan

FINTRAC has published a Notice on its website detailing its plan for the implementation of new reporting obligations related to upcoming regulatory amendments.

The message pertains to work under way in relation to the delivery of updated reporting forms, report specifications and over 60 guidance documents.

At the centre of the guidance are efforts to further improve the effectiveness of the Anti-Money Laundering and Anti-Terrorist Financing Regime. Two sets of regulatory amendments were published in the Canada Gazette on July 10, 2019, and another one more recently on June 10, 2020. Some of the regulatory amendments came into force last year on June 1, but the majority of the amendments will come into force on June 1, 2021.

The schedule provides reporting entities with time to update their systems to comply with reporting obligations, and to allow FINTRAC to make necessary modifications to its reporting forms, reporting specifications and guidance documents.

 

Jan 07, 2021 – Updated Risk Assessment Guidance

FINTRAC has published updated risk assessment guidance to include legislative amendments from June 2017 and legislative amendments that will come into force on June 1, 2021.

The guidance answers the following questions:

  1. What is risk?
  2. What are inherent and residual risks?
  3. What is a risk-based approach (RBA)?
  4. What is the RBA cycle?

It also contains the following annexes, which provide additional references, examples and tools to help you develop your RBA:

  • Annex 1 — FINTRAC’s RBA expectations
  • Annex 2 — Examples of higher risk indicators and considerations for your business-based risk assessment
  • Annex 3 — Examples of risk segregation for your business-based risk assessment
  • Annex 4 — Likelihood and impact matrix
  • Annex 5 — Examples of higher risk indicators and considerations for your relationship-based risk assessment

The full guidance can be found here.

 

Nov 16, 2020 – June 2021 Regulatory Amendments and Flexibility

FINTRAC issued an announcement to remind reporting entities (RE) that are subject to the PCMLTFA that the following regulatory amendments will come into force on June 01, 2021:

  • New and revised definitions
  • Additional foreign money services businesses (FMSBs) obligations
  • Virtual currency (VC) obligations for all REs, including submitting Large Virtual Currency Transaction Reports (LVCTRs)
  • Prepaid payment products and accounts obligations for financial entities (FEs)
  • Obligations for life insurance companies, brokers and agents when they are acting as FEs
  • Beneficial ownership obligations extended to all REs
  • Business relationships and ongoing monitoring obligations extended to all REs
  • Politically exposed persons (PEPs) obligations extended to all REs
  • Deemed receipt of funds and VC obligations
  • Repeal of third-party deeming for persons acting on behalf of an employer
  • Certain record keeping obligations

While FINTRAC expects REs to comply with the amendments, the agency  acknowledges that many may be challenged to meet these obligations due to the pandemic. For this reason, FINTRAC also issued guidance on where it will exercise flexibility in assessing and enforcing compliance. Some points to note:

  • Flexibility measures will not apply to the new virtual currency obligations – The agency expects REs to implement all virtual currency related obligations, starting on June 1, 2021.
  • Current Large Cash Transaction Reports (LCTRs), Electronic Funds Transfer Reports (EFTRs), Casino Disbursement Reports (CDRs) and Suspicious Transaction Reports (STRs) – REs are expected to continue submitting reports using the current reporting forms and systems while FINTRAC updates its reporting forms. Also, REs will not be expected to aggregate and submit SWIFT and non-SWIFT transactions in one reporting form until the updated EFT reporting forms are implemented.
  • Aggregating multiple transactions based on the beneficiary for LCTRs and EFTRs (under the 24-hour rule) – The current LCTR and EFTR forms do not allow REs to aggregate information based on the beneficiary. FINTRAC will expect REs to continue complying with the reporting and record keeping obligations until updated reporting forms are implemented.
  • Aggregating transactions of $10,000 or more with transactions of less than $10,000 for LCTRs, EFTRs and CDRs (under the 24-hour rule) – FINTRAC’s current LCTR, EFTR and CDR forms do not allow REs to submit a report that combine aggregated transactions of less than $10,000 made within 24 consecutive hours that total $10,000 or more with a transaction of $10,000 or more. Until the updated reporting forms are implemented, REs are expected to continue submitting a report for each transaction of $10,000 or more, and where two or more transactions of less than $10,000 made within 24 consecutive hours that total $10,000 or more.
  • Application of reasonable measures to obtain reporting information for non-mandatory information for LCTRs, EFTRs, and CDRs – FINTRAC will be flexible when assessing whether an RE took reasonable measures to obtain non-mandatory information but the agency expects REs to have processes in place.
  • Reporting and record keeping of non-mandatory information for existing reports – FINTRAC will be flexible when assessing whether non-mandatory information related to certain fields in the amended Schedules were reported and kept in a record. FINTRAC encourages REs to continue providing this information in STRs and TPR.

To read more details about how FINTRAC will exercise flexibility in assessing and enforcing compliance, visit here.

 

July 27, 2020: FATF and High-Risk Jurisdictions

On June 30, 2020, the FATF issued a statement on high-risk jurisdictions subject to a call for action and a statement on jurisdictions under increased monitoring.

FATF has identified the following:

  • Jurisdictions identified as high-risk jurisdictions: Iran and Democratic People’s Republic of Korea (DPRK)
  • Jurisdictions identified for increased monitoring: Albania, The Bahamas, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Myanmar, Nicaragua, Pakistan, Panama. Syria, Uganda, Yemen and Zimbabwe
  • Jurisdictions no longer subject to monitoring: Iceland and Mongolia.

With regards to the DPRK, the Canadian Minister of Finance has provided the following directive:

“Every person or entity referred to in section 5 of the PCMLTFA shall treat all transactions originating from, or destined to, North Korea (Democratic People’s Republic of Korea) as high risk for the purposes of subsection 9.6(3) of the Act.”

With regards to Iran, the Canadian Minister of Finance has provided the following directive:

“Every person or entity referred to in paragraphs 5‍(a), (b) and (h) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) shall

(a) treat every financial transaction originating from or bound for Iran, regardless of its amount, as a high risk transaction for the purposes of subsection 9.6‍(3) of the Act;

(b) verify the identity of any person or entity requesting or benefiting from such a transaction in accordance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations);

(c) exercise customer due diligence, including ascertaining the source of funds in any such transaction, the purpose of the transaction and, where appropriate, the beneficial ownership or control of any entity requesting or benefiting from the transaction;

(d) keep and retain a record of any such transaction, in accordance with the Regulations; and

(e) report all such transactions to the Centre.”

FINTRAC is also reminding all reporting entities subject to the requirements of the PCMLTFA of their obligation to submit a terrorist property report (TPR) to FINTRAC without delay, once they have met the threshold to disclose under the Criminal Code or the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism (RIUNRST). Guidance related to TPRs can be found on FINTRAC’s website.

Read the entire brief here.

 

July 2020 – Special Bulletin on COVID

FINTRAC has issued a special bulletin on their analysis of transaction reporting during COVID-19 pandemic. This new report follows an earlier guidance on temporary flexibility issued by FINTRAC on March 25, 2020.

While the COVID-19 pandemic has not had a significant impact on the overall volume of suspicious transaction reports (STR) and electronic funds transfer reports (EFTRs), the volume of casino disbursement reports (CDR) and large cash transaction reports (LCTR) has significantly decreased. FINTRAC says the overall decrease in large cash transactions is likely a result of the physical distancing and public health measures as they have resulted in a general decline in cash transactions and business closures, including casinos.

The COVID-19 pandemic represents an unprecedented situation that may lead to unusual transaction activities, FINTRAC stated. While many unusual patterns may reflect legitimate needs to access financial services during this challenging time, some individuals may attempt to profit from the current situation to facilitate money laundering.

The COVID-19 pandemic, and associated closures and physical distancing measures, has disrupted some money laundering methods – particularly those that rely on the placement of illicit cash into cash-intensive businesses – and may expose criminals seeking alternate venues to integrate illicit proceeds into the financial system.

Read the entire brief here

 

Apr 21, 2020 – Reporting Suspicious Transactions

All reporting entities (REs) and individuals employed by REs must report suspicious transactions (STR) under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations. An employee is only expected to report STRs to FINTRAC should they believe that their employer has not submitted an STR as prescribed by the PCMLTFA and associated Regulations.

This April 2020 guidance should be read in conjunction with the two other suspicious transaction reporting guidance documents:

This guidance document answers the following questions:

  • What is a suspicious transaction report (STR)?
  • What measures do you need to take to enable your submission of STRs to FINTRAC?
  • What are reasonable grounds to suspect (RGS)?
  • When do you submit an STR to FINTRAC?
  • How does FINTRAC assess your compliance with the obligation to submit STRs?
  • How can you assess your own compliance with the obligation to submit STRs?

Read the full guidance here

 

Alessa is an AML compliance solution that offers customer due diligence, sanctions and watchlist screening, real-time transaction monitoring and regulatory reporting. With the ability to integrate with existing AML and banking systems, the solution provides a holistic view of data so organizations can take a risk-based approach to compliance. To learn how Alessa can be used to comply with PCMLTFA, contact us.

 

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