The Department of Finance Canada released a sweeping consultation paper with respect to Canada’s anti-money laundering and anti-terrorist financing regime (AML/ATF regime), including potential changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and the Criminal Code. The review of the PCMLTFA is required every five years under the Act, which provides the government with an opportunity to keep the AML/ATF regime current in response to market developments. The Parliamentary Committee involved in the review will release a report that will help determine future policy measures. The consultation paper seeks input to support the development of these policy measures.
Both domestic and international reports have indicated there are challenges in the ability of Canada’s AML/ATF regime to use financial intelligence, ensure transparency of legal persons, successfully investigate and prosecute money laundering and remove the proceeds of crime from criminals. The consultation paper covers a lot of ground, including the history of the AML/ATF regime, international regimes, national security considerations, and potential enforcement mechanisms including possible criminal law reforms and the creation of a new Canada Financial Crimes Agency (CFCA) to become the lead enforcement agency against financial crimes. The summary below focuses on possible measures to improve operational effectiveness of the AML/ATF regime, and the potential impact on securities registrants.
The consultation paper contemplates enhancing information sharing to facilitate the detection and disruption of money laundering and terrorist financing activities, including a framework for private sector organizations to share information among themselves. The Department of Finance indicated its interest in reviewing the ability of the Financial Reports and Analysis Centre of Canada (FINTRAC) to request additional information from reporting entities when needed to analyze suspected money laundering or terrorist financing.
Another potential consideration is the viability of creating and maintaining a federal database of politically exposed persons (PEPs) and heads of international organizations (HIOs) and their family members/close associates.
With respect to sharing information with other regulators, the consultation asks whether the government should amend the PCMLTFA to allow FINTRAC access to findings from other regulators and share FINTRAC compliance information with other regulators to help inform compliance assessments of those subject to the Act. The scope of the PCMLTFA itself is also under consideration. For example, the paper queries whether the Act should be expanded to cover new sectors, including luxury goods, title and mortgage insurers, and crypto and digital assets technology.
Currently, reporting entities are required to document a review of their AML/ATF compliance program to test its effectiveness every two years. AUM Law performs many such reviews for registrant clients. The consultation paper considers the ability for FINTRAC to direct a compliance review in addition to the two-year effectiveness review, in circumstances of urgent or significant non-compliance matters. It is currently contemplated that reporting entities could be required to share the results of the review, and any remedial measures identified, with FINTRAC.
The framework’s review is also meant to ensure that FINTRAC can effectively supervise people and entities subject to the Act. One proposal would involve requiring all regulated persons and entities subject to the PCMLTFA, such as registered dealers and advisers, to register with FINTRAC and provide relevant information about their businesses. Currently, this is only a requirement for money service businesses which have to provide information about their business, ownership and senior management to FINTRAC. The purpose of any such requirement would be to support sharing updates on new guidance and better risk-based compliance processes.
With respect to existing obligations, reporting entities must appoint an AML/AMF compliance officer, and the government is considering amendments to the PCMLTFA to specify the knowledge and competencies required of a qualified compliance officer. The government may also in future provide further details as to when a “business relationship” is considered to have ended, which may help relieve some of the obligations on reporting entities for ongoing monitoring of a business relationship that no longer exists. Open ended questions are also asked with respect to whether there are other opportunities to streamline AML/ATF requirements to reduce the regulatory burden on reporting entities, while balancing the risk-based approach to these obligations and Canada’s international commitments.
Submissions on the consultation close on August 1, 2023. If you are interested in commenting on any aspect of the consultation and would like assistance, please don’t hesitate to reach out to your usual AUM professional.
June 30, 2023