FINTRAC to Implement New Mortgage Sector Obligations, Stronger Correspondent Banking Obligations and a New Funding Model

The Government of Canada published regulations that will create new obligations for the mortgage sector, strengthen correspondent banking relationship requirements, and shift the funding of the Financial Transactions and Reports Analysis Centre of Canada’s (FINTRAC) compliance program from taxpayers to certain reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

The changes are intended to support Canada’s and FINTRAC’s efforts to combat money laundering and terrorist financing.

New Obligations and Requirements

Mortgage Sector

Effective October 11, 2024, persons or entities in the mortgage sector (comprised of mortgage administrators, mortgage brokers and mortgage lenders) will be subject to the PCMLTFA. See our February 23, 2023 Update, Non-Financial Institution Mortgage Lenders May Soon Become Subject to Anti-Money Laundering/Anti-Terrorist Financing Regime.

The mortgage sector will be required to, among other things:

• implement an anti-money laundering and anti-terrorist financing compliance program,
• report to FINTRAC regarding suspicious, large cash or large virtual currency transactions, as well as terrorist property in their possession or control, and
• keep records and verify the identity of their clients in accordance with specified requirements under the PCMLTFA.

Additional information for the mortgage sector can be found on FINTRAC’s website – Mortgage administrators, brokers and lenders.

Correspondent Banking Relationships

Also effective October 11, 2024, financial entities entering into a correspondent banking relationship will be required to:

• conduct and document a risk assessment of their correspondent banking relationships, and keep this current,
• conduct additional due diligence measures and maintain a record of:
  • the nature of the clientele and markets served by the foreign financial institution,
  • the reputation of the foreign financial institution with respect to anti-money laundering and anti-terrorist financing requirements,
  • the quality of the anti-money laundering and anti-terrorist financing supervision of the jurisdiction in which the foreign financial institution is incorporated and conducts transactions, and
• conduct ongoing monitoring of the correspondent banking relationship according to the risk.

New Funding Model

Beginning April 1, 2024, FINTRAC will implement a new funding model that will shift the source of funds for its compliance program from taxpayers to certain reporting entities and individuals. The following businesses and individuals will be charged as part of FINTRAC’s assessment of expenses:

• banks (to which the Bank Act applies) and authorized foreign banks (as defined in section 2 of the Bank Act),
• trust and loan companies (to which the Trust and Loan Companies Act applies),
• life insurance companies (to which the Insurance Companies Act applies), and
• other businesses and individuals that submit 500 or more threshold transaction reports (such as casino disbursement reports, electronic funds transfer reports, large cash transaction reports, and large virtual currency transaction reports) to FINTRAC during a given fiscal year.

Details on how FINTRAC developed the funding model and how it will determine the amounts charged to the foregoing parties can be found on FINTRAC’s website – Charging reporting entities for FINTRAC’s compliance program. FINTRAC indicated it intends to contact and provide further detailed information to businesses and individuals who may be charged.

Looking Forward

For further information concerning this development or how the new requirements impact your business, contact any member of our Financial Services Regulatory Group.

The author would like to thank Cathy Costa-Faria, Associate for her assistance in writing this Update.