Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations
Enabling act: Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)
Description
Obligations for Mortgage Lending Entities
In Budget 2022, the federal government announced its intention to extend anti-money laundering and anti-terrorist financing requirements to all businesses conducting mortgage lending in Canada to help prevent financial crimes in the real estate sector. The proposed regulations, once in force, would require all entities involved in the mortgage lending process (i.e., brokers responsible for mortgage origination, lenders responsible for underwriting the loan, and administrators responsible for servicing the loan) to develop a compliance program, apply customer due diligence measures, adhere to record keeping and transaction reporting requirements, and follow Ministerial directives and transaction restrictions when funds go to or come from certain countries.
Correspondent Banking
Under the PCMLTFA, Canadian financial entities can enter into correspondent banking relationships to provide financial services to foreign financial entities. Correspondent banking relationships support international trade, charitable giving, commerce, and remittances flows, all of which promote financial inclusion. However, both the Financial Action Task Force (FATF) and the Bank of International Settlements consider these relationships highly vulnerable to misuse for money laundering and terrorist financing. To mitigate these risks, the PCMLTFA and Regulations specify the requirements and due diligence measures that Canadian financial entities must satisfy prior to entering a correspondent banking relationship.
The current obligations of the PCMLTFA do not fully align with existing international standards and expectations, which can expose Canada’s correspondent banking framework to unmitigated risks. The regulatory amendments will enhance the due diligence and risk mitigation practices of Canadian financial entities, and bring Canada’s correspondent banking rules in-line with international standards.
Regulatory cooperation efforts (domestic and international)
The Department of Finance aligned the proposed amendments with international standards and best practices with the aim to ensure consistency for financial institutions and mortgage lending entities operating in a global environment. These amendments are required to bring Canada into full compliance with the FATF Standards, which Canada is required to endorse and implement as a member of the FATF.
Potential Impact on Canadians, including Businesses
The proposed amendments will improve Canada’s compliance with FATF international standards. Meeting these standards improves the integrity of the global Anti-Money Laundering and Anti-Terrorist Financing framework, positively impact Canada’s international reputation, and may lead to regulatory efficiencies with other countries’ regimes, making it easier for Canadian businesses to operate internationally.
Consultations
Obligations for Mortgage Lending Entities
The Department of Finance, in partnership with FINTRAC, have conducted consultations with industry stakeholders and provincial regulators.
Correspondent Banking
The Department of Finance consulted on this proposal in a 2018 public consultation paper entitled Reviewing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime. Further bilateral consultations were undertaken with two large Canadian financial institutions. In June 2022, the Department of Finance consulted industry stakeholders, including financial institution representatives as part of the Advisory Committee on Money Laundering and Terrorist Financing.
Further, interested stakeholders will have an opportunity to review and comment on the proposed regulations as part of the formal regulation-making process when the regulatory proposal is pre-published in the Canada Gazette, Part I.
Departmental contact information
Erin Hunt
Director General, Financial Crimes and Security Division
Financial Sector Policy Branch
Department of Finance Canada
90 Elgin St.
Ottawa, Ontario K1A 0G5
Email: fcs-scf@fin.gc.ca
Date the regulatory initiative was first included in the Forward Regulatory Plan
October 2020
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