Money laundering is a true plague of the global financial system that infects all countries worldwide without exceptions. Even worse, Illegally gained funds get cashed in to finance terror and perform further criminal activities. It encourages regulatory authorities to apply more and more complex anti-money laundering regulations over the years.

Following global AML trends, Canada has also strengthened the national AML/ATF regime and implemented significant changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

This updated guidance concerns all reporting entities with obligations to FINTRAC, who need now re-evaluate and upgrade their anti-money laundering programmes and compliance policies. Continue reading to learn more about the changes in Canadian regulatory laws and review your AML/CFT policy already today!

Key aspects of the new Canadian AML regime

While, Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) registered amended regulations on June 25, 2019, they are considered to be in force from June 01, 2021.
These amendments refine and update the following key aspects of the Canadian AML regime:

  • New updated definitions
  • New virtual currency (VC) obligations for all reporting entities (which includes submitting Large Virtual Currency Transaction Reports (LVCTRs) to FINTRAC from June 1, 2021
  • Certain updates to identification methods and Know Your Customer (KYC) procedure
  • Introduction of obligations relating payment products and accounts for all financial entities (FEs)
  • Obligations regarding Politically Exposed Persons (PEP) extended to all reporting entities
  • Beneficial ownership obligations extended to all reporting entities
  • Obligations for Business relationships and ongoing monitoring extended to all reporting entities
  • Updated obligations for record-keeping
  • Expanded obligations for foreign money services businesses (FMSBs)
  • Repeal of third-party deeming for persons acting on behalf of an employer

FINTRAC certainly understands that the majority of the companies have many difficulties in meeting new obligations and having their internal processes updated in time.

Therefore, it has promised to exercise flexible measures and reasonable discretion during assessing reporting entities’ compliance programs until the official implementation deadline of the current reporting forms.

According to the Notice from the Canadian regulator published on May 18, FINTRAC will not start conducting compliance assessments regarding updated obligations until April 1, 2022.

For the period from June 1st, 2021, to March 31, 2022, FINTRAC will only evaluate reporting entities’ compliance programs according to old obligations which had been set before June 1st, 2021. Canadian regulator considers a possibility to assess the new transactional reporting policies before April 1st, 2022, yet promises to use flexible measures in those evaluations too.

FINTRAC plans to issue an updated Assessment Manual along with updated harm done assessment guides by March 31st, 2022.

This directive gives reporting entities enough time to revise existing KYC processes and implement up-to-date KYC and AML solution.

Even though FINTRAC shows flexibility in supervising and enforcing compliance, it firmly requires reporting entities to fully comply with the new Large Virtual Currency Transaction Reports (LVCTRs) regulations and new obligations of electronic funds transfer reporting that are now in place from June 1st. Reporting entities that haven’t yet completed the required update of their compliance policies regarding LVCTR and funds reporting still have time to do it till December 1st, 2021.

Such a gentle approach of flexible measures to the vast majority of the June 1st regulatory changes receives lots of positive feedback from the Canadian and international companies, working in this legislation. It will provide some extra time to upgrade their compliance programs and processes, and implement certain technological upgrades if needed.
Wherever possible, FINTRAC is committed to working constructively with REs.

LVCTR requirements

Probably, the most important and urgent change in the new Canadian Regulations was the introduction of Large Virtual Currency Transaction Reports (LVCTR) obligations. From now on all entities and individuals that are subject to the PCMLTFA must report when aggregating transactions in virtual currency equivalent to $10,000 (Canadian dollars) or more in a single transfer or series of transactions under the 24-hour rule.

These reports must include electronic data about the identities of involved parties, date of transaction, exact amount, exchange rate and correspondingly type of the currency.

Although full compliance with this new reporting policy is officially required as of June 1st, 2021, FINTRAC understands that it provides too little time to implement it while the level of the required effort is quite high.

Those reporting entities, who are not able to comply yet with the full LVCTR requirements, are expected to meet at least the following provisional obligations:

  • keep records of reportable transactions as of June 1st, 2021
  • complete the implementation of the LVCTR reporting system as soon as possible and no later than December 1st, 2021; after that date, LVCTRs must be submitted within five working days
  • submit all unreported large virtual currency transactions for the period of June 1, 2021, to November 30th, 2021, via the FINTRAC Upload or the FINTRAC web reporting system (F2R) as soon as possible but no later than March 31st, 2022.

These temporary allowed flexible measures will be valid till December 1st, 2021, after which all reporting entities will be obliged to comply with the full LVTCR requirements.

Right now the FINTRAC web reporting system (F2R) does not support LVCTR reporting, but REs can still report large transactions by using FINTRAC Upload.

FINTRAC has plans to update F2R’s and add a LVCTR reporting option at some point in autumn 2021. The exact date is not announced, but as soon as F2R gets the needed update, REs that do not report via FINTRAC Upload will be obliged to submit all VLCTRS including transactions that were previously reportable but had not been submitted.

Electronic Funds Transfer Reports

Regarding new Electronic Funds Transfer Reports (EFTRs), FINTRAC has posed even higher standards of compliance than in the case of LVCTRs. These new EFTR obligations are also considered to be effective from June 1st, 2021.

REs are obliged now to report EFTRs to FINTRAC only in case of being the final recipient of international electronic funds transfers of $10,000 (or more) in a single transfer or series of transactions under the 24-hour rule. If the reporting entity is the initiator of a $10,000 (or more) fund transfer, they are required to report as well.

Overall, FINTRAC counts cases of over-reporting as compliance breaches. Therefore, RE should not report electronic funds transfers that do not fit any of described above conditions even if they are supposed to do it under the old compliance law. In the case the over-reporting still happens, REs are expected to report a voluntary self-declaration of non-compliance and delete their submitted records of electronic fund transfer from FINTRAC’s database straightaway.

REs with EFTR obligations, who technically cant submit the money transfer according to the June 1st amendments are considered to be “underreporters” and must take at least the following provisional measures:

  • submit a voluntary self-declaration of non-compliance
  • keep records of all reportable transactions
  • keep records of all reportable transactions
  • update or implement its reporting system to comply with the requirements as soon as they can but no later than December 1st, 2021
  • submit unreported EFTRs for the period of June 1st, 2021, to November 30th, 2021, as soon as they can but no later than March 31st, 2022.

Non-compliance declarations

Except for the new regulatory obligations regarding LVCTR and EFTR, FINTRAC doesn’t demand voluntary reporting for non-compliance with any other regulative changes that came to force on June 1st.

“Grace period” will last till November 30th, 2021. Reporting entities must continue declaring non-compliance if they don’t comply with regulatory obligations that were functioning before June 1st and that remain functioning under the June 1st amendments.

Summing Up

Although recent PCMLTFA regulatory amendments definitely add certain simplicity to compliance with Canadian AML regulations, REs still must update their AML/CFT programs and make sure that the identity verification solution they use follows the new standards set up by FINTRAC.

BASIS ID stays 100% updated with the recent regulatory changes and provides KYC and AML solution required for submitting all necessary data in accordance with FINTRAC’s obligations. Being an innovator in the field of data analysis and personal data verification, BASIS ID helps companies of all sizes to manage their AML, KYC, and EDD processes.

Contact BASIS ID KYC expert for more information and additional questions about how we can assist your company to comply with new KYC and AML amendments in the PCMLTFA. 

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