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: SOR/2022-76

Canada Gazette, Part II, Volume 156, Number 9

Registration
SOR/2022-76 April 5, 2022

PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT

P.C. 2022-338 April 5, 2022

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsections 73(1)footnote a and 73.1(1)footnote b of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act footnote c, makes the annexed 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.

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

Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

1 (1) Paragraph (a) of the definition electronic funds transfer in subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations footnote 1 is repealed.

(2) Subsection 1(2) of the Regulations is amended by adding the following in alphabetical order:

crowdfunding platform
means a website or an application or other software that is used to raise funds or virtual currency through donations. (plateforme de sociofinancement)
crowdfunding platform services
means the provision and maintenance of a crowdfunding platform for use by other persons or entities to raise funds or virtual currency for themselves or for persons or entities specified by them. (services de plateforme de sociofinancement)

2 The Regulations are amended by adding the following before section 30:

29.1 For the purposes of subparagraphs 5(h)(v) and (h.1)(v) of the Act, crowdfunding platform services are a prescribed service.

3 The Regulations are amended by adding the following after section 36:

36.1 A money services business, in connection with crowdfunding platform services that they provide, and a foreign money services business, in connection with crowdfunding platform services that they provide to persons or entities in Canada, shall

4 (1) Subsection 95(1) of the Regulations is amended by striking out “or” at the end of paragraph (e.1) and by adding the following after paragraph (f):

(2) Subsections 95(3) and (4) of the Regulations are replaced by the following:

(3) A money services business — or foreign money services business in connection with services that they provide in Canada — shall, in accordance with section 109, verify the identity of a corporation

(4) A money services business — or foreign money services business in connection with services that they provide in Canada — shall, in accordance with section 112, verify the identity of an entity, other than a corporation,

5 Subsection 105(7) of the Regulations is amended by adding the following after paragraph (h):

6 (1) Paragraph 109(4)(g) of the Regulations is replaced by the following:

(2) Subsection 109(4) of the Regulations is amended by striking out “and” at the end of paragraph (h) and by adding the following after paragraph (h):

7 (1) Paragraph 112(3)(g) of the Regulations is replaced by the following:

(2) Subsection 112(3) of the Regulations is amended by striking out “and” at the end of paragraph (h) and by adding the following after paragraph (h):

8 Subsection 124(2) of the Regulations is replaced by the following:

(2) For the purposes of section 9.5 of the Act, the prescribed electronic funds transfers are

9 The Regulations are amended by adding the following after section 150:

Electronic Funds Transfer by Credit or Debit Card or Prepaid Payment Product

150.1 Paragraphs 7(1)(b) and (c), 12(o) to (q), 13(f) and (g), 14(1)(h) and (i), 70(1)(b) and (c) and 74(2)(c) to (e), clauses 86(a)(iii)(B) and (F), subparagraphs 116(1)(b)(i) and (ii) and paragraphs 120.2(3)(a) and (b) do not apply in respect of an electronic funds transfer that is carried out by means of a credit or debit card or a prepaid payment product if the beneficiary has an agreement with the payment service provider that permits payment by that means for the provision of goods and services.

Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations

10 Part 2 of the schedule to the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations footnote 2 is amended by adding the following after item 46:

Item

Column 1

Provision of Act

Column 2

Provision of Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

Column 3

Classification of Violation
46.1 6 36.1 Minor

Coming into Force

11 These Regulations come into force on the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Canada’s Anti-Money Laundering and Anti-Terrorist Financing (AML/ATF) Regime (the AML/ATF Regime), which was first established in 2000–2001, must regularly adapt and evolve to changes in its operating environment and changes to international standards. Actions to counter money laundering and terrorist financing have long been recognized as powerful means to combat crime and protect the safety and security of Canadians. Regulatory changes are needed to continue to address gaps in Canada’s AML/ATF Regime and improve its alignment with international standards.

Crowdfunding platforms and some payment service providers are not currently covered by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) and therefore have no money laundering and terrorist financing obligations under federal statute. This lack of oversight presents a serious and immediate risk to the security of Canadians and to the Canadian economy. This risk was highlighted in early 2022, when illegal blockades took place across Canada that were financed, in part, through crowdfunding platforms and payment service providers. Allowing these gaps to continue represents a risk to the integrity and stability of the financial sector and the broader economy, as well as a reputational risk for Canada.

Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, and consequential amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations, will help prevent the financing of illegal activities through these types of financial services.

Background

Crowdfunding platforms and payment service providers

Crowdfunding is the practice of funding a project or venture by raising financial contributions from a number of people, typically through online platforms, to carry out a project, investment, or other endeavours requiring funds. Unlike traditional fundraising methods (e.g. loans from financial institutions), crowdfunding platforms allow individuals or groups to appeal for funds directly from members of the public connected online who may be geographically dispersed.

Crowdfunding platforms are often supported by payment service providers, which help these businesses accept payments from customers by connecting them to payment networks for the purposes of transaction authorization, clearing, and settlement. The payment service provider sector is diverse, offering a range of services to their clients. While not all payment service providers are captured under the Act, some of these businesses are already subject to AML/ATF requirements where they meet the definition of an existing reporting entity sector, such as a money services business, or possibly a financial institution.

Canada’s AML/ATF Regime

The core elements of Canada’s AML/ATF Regime are set out in the Act. The Act applies to designated financial and non-financial entities (known as “reporting entities”),footnote 3 which provide access to the financial system and may therefore be susceptible to abuse by criminals seeking to integrate the proceeds of their crimes into the legitimate economy.

The Act sets out obligations that broadly fall into the following four categories: record keeping, verification of identity of designated persons and entities (e.g. clients with whom the reporting entities conduct business), reporting of suspicious and other prescribed financial transactions (e.g. large cash transactions), and the establishment and implementation of an internal compliance program. The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations) set out how reporting entities are to fulfill these obligations. Relatedly, the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations set out the provisions under the Act and Regulations that are subject to administrative monetary penalties, and classify the violations of those provisions as minor, serious, or very serious.

Currently, crowdfunding platforms and some payment service providers are not subject to the Canadian AML/ATF Regime.

Emergency Economic Measures Order

On February 14, 2022, the Government took the unprecedented step of invoking the Emergencies Act to end disruptions, blockades, and the occupation of the city of Ottawa.

As an important part of this, the Emergency Economic Measures Order allowed the Government to take concrete action to stop the financing of illegal blockades — to limit the flow of money used to finance these unlawful activities, and to prevent additional financial support. This included an extension of certain AML/ATF obligations to crowdfunding platforms and certain payment service providers that were not previously regulated for this purpose.

These temporary measures were aimed at increasing both the quality and quantity of intelligence received by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada’s financial intelligence unit and AML/ATF regulator, and the ability of law enforcement agencies to identify and take action against those involved in illegal assemblies.

The declaration of the public order emergency was revoked on February 23, 2022. However, in order to mitigate the money laundering and terrorist financing risks that crowdfunding platforms and payment service providers pose, the Government has announced its intention to quickly and permanently extend obligations set out in the Act to persons and entities that offer these services. This has been announced publicly on several occasions by the Deputy Prime Minister and Minister of Finance, notifying industry and the public that these changes are quickly forthcoming. This includes various speeches delivered to Parliament and at news conferences in February 2022 following the invocation of the Emergencies Act and associated Emergency Economic Measures Order. Regulatory amendments are needed to implement these measures.

Financial Action Task Force and requirements to address risks posed by new technologies

Canada is a founding member of the Financial Action Task Force (FATF), an intergovernmental body that sets standards and promotes effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist activity financing and other related threats to the integrity of the international financial system. The FATF standards include a set of 40 recommendations that set out a comprehensive and consistent framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction. These standards are complemented by 11 immediate outcomes used to assess the effectiveness of a country’s AML/ATF system.

Although the standards set by the FATF are not legally binding, as a member, Canada is obligated to implement them and to submit to a peer evaluation of their effective implementation. Not meeting this commitment could lead to a number of sanctions, from enhanced scrutiny measures to public listing, and, in the extreme, suspension of membership from the FATF. Furthermore, non-compliance could cause reputational harm to Canada’s financial sector and subject Canadian financial institutions to increased regulatory burdens when dealing with foreign counterparties or when doing business overseas.

In accordance with FATF Recommendation 15, countries should identify and assess the money laundering and terrorist financing risks that may arise in relation to the development of new products and new business practices, including new delivery mechanisms, and the use of new or developing technologies for both new and pre-existing products. Canada assessed the risks posed by crowdfunding platforms and payment service providers in its last national inherent risk assessment conducted in 2021, and found the risks posed by these sectors to be medium and high, respectively. Moreover, the FATF has identified crowdfunding platforms as an emerging area of risk for terrorist financing.

In addition, FATF immediate outcome 1 requires that money laundering and terrorist financing risks are understood, and where appropriate, actions are coordinated domestically to combat money laundering and the financing of terrorism and proliferation. Canada’s understanding of the risks posed by crowdfunding platforms and payment service providers, commensurate with recent domestic events, has resulted in the Government’s new policy direction to extend AML/ATF obligations to these sectors.

Objective

The objective of these amendments is to contribute to the safety and security of Canadians by taking measures to mitigate the money laundering and terrorist financing risks posed by crowdfunding platforms and payment service providers.

Description

These Regulations amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations to make crowdfunding platform services subject to existing requirements of the Act for money services businesses and foreign money services businesses, as applicable. Obligations include registration with FINTRAC, reporting requirements (including suspicious transactions and large-value transactions), record keeping, customer due diligence, and developing a compliance program. These requirements cover prescribed transactions in both fiat and virtual currency, and apply to domestic entities, as well as foreign entities when they direct their services to Canadians.

In addition, regulatory amendments will extend AML/ATF Regime obligations to a broader range of payment service providers, given that a large subset of this sector is already subject to the Act and the Regulations. This includes the removal of exemptions for the payment processing of credit, debit, and prepaid products under the definition of electronic funds transfer in order to extend regulatory obligations to payment service providers engaged in the business of those activities.

These Regulations also make consequential amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations to designate new provisions as violations subject to administrative monetary penalties.

Further, due to this policy change, FINTRAC will revise its interpretation of existing requirements to include businesses that offer certain payment services as payment service providers covered under the Act. This would include those businesses that provide merchant services (i.e. the provision of settlements directly to merchants on behalf of the merchant’s customers for the purchase of goods and services), as well as payment processing for utility bills, mortgage and rent, payroll, and tuition.

Combined, these changes will capture crowdfunding platforms and payment service providers in Canada, as well as foreign crowdfunding platforms and payment service providers directing services at Canadians.

Regulatory development

Consultation

The Cabinet Directive on Regulation requires Departments to prepublish regulatory proposals in the Canada Gazette, Part I.

The risks associated with crowdfunding platforms and payment service providers were assessed as being medium and high, respectively, in the Government’s most recent update to the Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada. These inherent risks were highlighted by the illegal blockades and occupations that took place across Canada in early 2022, which were financed, in part, through businesses in these sectors. The money laundering and terrorist financing risks these businesses pose can be mitigated through the application of measured obligations through regulations.

In order to swiftly address the serious and immediate risk to the security of Canadians and the Canadian economy posed by crowdfunding platforms and certain payment service providers due to their vulnerability to being exploited for money laundering and terrorist financing purposes, the Regulations were exempt from the requirement to prepublish.

The Department of Finance held discussions with financial institutions and payment service providers, as represented by PayTechs of Canada, to discuss the implementation of the measures contained in the Emergency Economic Measures Order. When the Order was in place, many of the crowdfunding platforms and payment service providers that would be subject to these Regulations registered with FINTRAC. The requirements in these regulations are broadly similar to those imposed by the Order.

Following the Deputy Prime Minister and Minister of Finance’s announcement to make the measures permanent, FINTRAC began engagement with other financial regulators and implicated sectors to expand its understanding of the payments ecosystem, and to respond to reporting entity inquiries. Discussions have allowed FINTRAC to explore the implications of these requirements and solicit any concerns around compliance. Stakeholders have shown openness to understand the measures and compliance requirements throughout this process.

Modern treaty obligations and Indigenous engagement and consultation

No impacts have been identified in respect of the Government’s obligations in relation to Indigenous rights protected by section 35 of the Constitution Act, 1982, or its modern treaty obligations.

Instrument choice

Canada’s AML/ATF Regime is established in legislation and regulations. Amending the Regulations is the most effective way to address gaps by strengthening the AML/ATF Regime, while limiting burden to industry. Further, under the FATF, Canada has committed to identifying and mitigating emerging money laundering and terrorist financing risks. These changes are in line with those commitments.

Regulatory analysis

Benefits and costs

A large number of payment service providers are already subject to requirements under the Act, as money services businesses. Many crowdfunding platforms have terms of reference and internal processes dedicated to mitigating the money laundering and terrorist financing risks that these platforms may pose. As with all sectors subject to the Act, the Government develops requirements that mitigate money laundering and terrorist financing risks, while minimizing administrative burden and respecting privacy laws and the Canadian Charter of Rights and Freedoms.

More broadly, the Government has placed a priority on continuing to strengthen Canada’s AML/ATF Regime to respond to growing and more complex threats.

Costs

A comprehensive set of amendments were made to the Regulations in 2019 in order to operationalize legislative changes, strengthen the Canadian AML/ATF Regime, and ensure alignment with the FATF standards. Among other measures, these regulatory amendments introduced requirements for virtual currency dealers as a new sector regulated as money services businesses, or foreign money services businesses where applicable, under the Act.

The costs imposed to businesses dealing in virtual currency as a result of the 2019 regulatory amendments are analogous to the costs to crowdfunding platforms and payment service providers, as they represent the costs incurred by money services business newly covered by the AML/ATF Regime. This includes the cost to register with FINTRAC, update systems, establish policies and procedures, train employees, and participate in compliance examinations.

Due to the urgent nature of the regulatory amendments to mitigate the serious and immediate risks posed to the security of Canadians by crowdfunding platforms and payment service providers, the cost estimates to businesses identified for the 2019 regulatory amendments form the basis for the cost-benefit analysis for the regulatory amendments introducing obligations to crowdfunding platforms and payment service providers.

Crowdfunding platforms and newly covered payment service providers are expected to carry an estimated $13.5 million (present value [PV]) in compliance costs and between $4.5 million and $6.7 million (PV) in administrative costs, for an estimated range of $18 million to $20.2 million (PV) in total costs over a 10-year period, as a result of these regulatory amendments.

Approximately 1 000 reporting entities will be affected, all of them businesses in the crowdfunding and payment service provider sectors. This represents an estimated range of approximately $18,000 to $20,240 in total costs per businesses over a 10-year period, depending on their size, with higher administrative costs expected for larger businesses. Reporting entity population data is an approximation of entities covered, as population is constantly changing due to elements such as mergers, changes in legislation, and the transient nature of certain sectors.

The benefit and cost analysis is based on previous consultations with stakeholders from the money services business sector, and adjusted with best available information. In estimating the compliance and administrative costs, higher costs are allocated to larger entities given the additional time expected to complete tasks, such as systems and policy and procedures updates. This was based on the assumption that larger entities have more complex systems in place.

Compliance costs are considered to be upfront costs faced by reporting entities to adapt their systems, policies and procedures. Entities would incur them only once. Administrative costs are annual and ongoing, and are adjusted to the size of the entity that incurs them. The administrative cost equations quantify the administrative costs for reporting entities to demonstrate compliance with the regulator in the context of providing documents for regulatory assessments. However, only a fraction of entities get examined by FINTRAC annually. To accurately portray these costs, the average number of examinations per money services business sector was employed.

More specifically, expected costs to industry primarily stem from the provision of information to FINTRAC through regulatory reporting requirements (including suspicious transaction reports, terrorist property reports, and reports for prescribed transactions valued at $10,000 or more, such as large cash transaction reports, electronic fund transfer reports, and large virtual currency reports) and compliance examinations; updates or development of internal policies and procedures, including the development and implementation of a compliance program established to ensure compliance with the Act and Regulations;footnote 4 and internal information management and information technology (IM/IT) system changes that would be required to support the implementation of the proposed amendments. Entities may already have certain components of these requirements in place, for example an anti-money laundering program that has been required for certain business purposes (e.g. to maintain business relationships with financial institutions).

Resource implications for the Government of Canada

Additional costs will be incurred by FINTRAC in the immediate term to operationalize these amendments. This includes compliance program–related costs, including building knowledge related to crowdfunding platform and payment service provider business models, performing money services business registry activities for newly regulated entities, developing policy interpretations and new guidance, staffing new compliance officer positions, and delivering compliance training and enforcement activities. In future years, these costs will be offset through the administration of a cost-recovery scheme for FINTRAC’s compliance activities once the scheme is implemented.

Benefits

Money laundering and terrorist activity financing have criminal and economic effects and contribute to facilitating and perpetuating criminal activity. Money laundering and terrorist activity financing harm the integrity and stability of the financial sector and the broader economy, and threaten the quality of life of Canadians. Money laundering damages the financial institutions that are critical to economic growth (through internal corruption and reputational damage); causes economic distortions by impairing the legitimate private sector; reduces productivity by diverting resources and encouraging crime and corruption; distorts the economy’s international trade and capital flows (through reputational damage and market distortions) to the detriment of long-term economic development; and reduces tax revenue as it becomes more difficult for municipal, provincial, and federal governments to collect revenue from related transactions which frequently take place in the underground economy. At the same time, there are substantial qualitative benefits associated with the proposed amendments that cannot be monetized due to the lack of available or reliable data to accurately measure the reputational, economic, and national security benefits that would result from the implementation of the regulatory changes.

A strengthened AML/ATF regime helps to combat money laundering and terrorist activity financing threats while protecting Canadians, the integrity of markets and the global financial system, and increases the investment attractiveness and competitiveness of Canada. The proposed amendments would support the stability, utility, and efficiency of the financial sector framework by strengthening the AML/ATF Regime and combating financial crime. All Canadians would benefit from a stable, efficient, and competitive financial sector that services and drives economic growth.

Strong AML/ATF policies help deter and detect money laundering and terrorist activity financing offences. The proposed amendments would enhance the quality and scope of FINTRAC disclosures of financial intelligence to law enforcement and disclosure recipients, which would better assist them in their investigations. The information submitted by crowdfunding platforms and payment service providers would better equip FINTRAC to enhance financial intelligence disclosures that law enforcement would use to investigate more money laundering cases.

The proposed amendments could also improve Canada’s compliance with FATF international standards, which will be considered during the next FATF mutual evaluation. Meeting these standards improves the integrity of the global AML/ATF framework, positively impacts Canada’s international reputation, and may lead to regulatory efficiencies with other countries’ AML/ATF regimes, making it easier for Canadian businesses to operate internationally. Meeting these standards also helps to ensure that Canada is not flagged as a jurisdiction of concern by the FATF for lack of action to address key AML/ATF deficiencies and ultimately prevents other countries from levying sanctions on Canada. Such reputational, economic, and national security impacts cannot be quantified.

Positive qualitative impacts

A strong and effective AML/ATF regime acts as a deterrent to crime and therefore improves the security of Canadians and the integrity of Canada’s financial system. In turn, this increases confidence in Canada’s financial system, making it an attractive place to invest and do business. Investors seek investment opportunities in locations that have a relatively low crime environment and that are politically and economically stable, among other factors. The willingness of businesses and individuals to invest in Canada could be negatively affected if Canada were viewed as weak on combating money laundering and terrorist activity financing or if Canada were to have a reputation for being a safe haven for raising terrorist funds. A strong reputation with regard to an effective AML/ATF regime helps Canadian financial institutions avoid burdensome regulatory hurdles and additional costs when dealing with their foreign counterparts or doing business overseas.

Small business lens

The amendments impact small businesses; therefore, the small business lens applies and has been considered in establishing compliance requirements.

The Department of Finance does not currently have data on business size for crowdfunding platforms and newly covered payment service providers. The proportion of costs incurred by small businesses due to these regulatory amendments is therefore unknown. If all crowdfunding platforms and payment service providers were small businesses, the costs to small businesses would be estimated at $18 million (PV) in total costs over a 10-year period. However, it is unlikely that all impacted crowdfunding platforms and payment service providers are small businesses.

As with all sectors subject to the Act, the Government develops requirements that mitigate money laundering and terrorist financing risks, while minimizing administrative burden, and respecting privacy laws and the Canadian Charter of Rights and Freedoms. Further, reporting entities are expected to apply a risk-based approach by considering elements of their business, clients and/or business relationships to identify the impact of possible money laundering and terrorist financing risks, and to apply controls and measures to mitigate these risks.

In line with this, FINTRAC adopts a risk-based approach to supervision. This means that an entity’s risk assessment should be tailored to its business size and type. For example, FINTRAC would expect a less detailed assessment from entities that conduct low volumes of transactions across limited business lines or products, as compared to larger, more diversified entities, with greater transaction volumes.

A strong and effective AML/ATF regime acts as a deterrent to crime and therefore improves the safety of Canadians and the integrity of Canada’s financial system.

If small businesses were exempted from the requirements, criminal and terrorist financing would be diverted to these businesses to avoid detection. An estimated 24 000 entities are already subject to the Act, ranging from the largest financial institutions in Canada, to small businesses. The risk-based approach allows entities of all sizes to comply with the Act in a manner that accounts for their size, activities, and transaction volumes.

One-for-one rule

The Regulations result in administrative costs for reporting entities to demonstrate compliance with the regulatory requirements in the context of providing documents to FINTRAC for regulatory assessments. This would apply to the new reporting entities covered by the AML/ATF Regime as a result of these regulatory amendments. However, given that these amendments are being introduced in response to an emergency which compromises public safety and the Canadian economy, they are exempt from the requirement to offset administrative burden under the one-for-one rule.

Regulatory cooperation and alignment

Canada’s AML/ATF Regime is largely consistent with international standards set by the FATF. Further, under the FATF, Canada has committed to identifying and mitigating emerging money laundering and terrorist financing risks. The introduction of AML/ATF requirements for crowdfunding platforms and payment service providers would align with requirements imposed by other jurisdictions.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

A gender-based analysis plus (GBA+) assessment was conducted for this proposal. The results indicate that by strengthening and modernizing Canada’s AML/ATF Regime, the proposed amendments would reduce potential threats to the country’s economic development and its financial security, increase investment attractiveness and competitiveness, and benefit the overall economy by contributing to the stability of the Canadian financial system, benefiting both men and women. Any crime that generates profit can be a precursor to money laundering, including drug offences, fraud, and human trafficking. Therefore, these measures target a broad array of crimes, for which the gender, age, and socio-economic status of the victims vary greatly. As a result, these measures have the potential to advance gender-specific objectives, yet are expected to be gender neutral on balance.

Privacy impacts

FINTRAC requires a certain volume, and specific types, of financial transaction information in order to be able to produce actionable financial intelligence for law enforcement partners. The AML/ATF Regime aims to strike the right balance between the privacy rights of Canadians and the policy objectives of Canada’s AML/ATF Regime. Clear principles for the protection of privacy are set out in FINTRAC’s governing legislation, which respects the Canadian Charter of Rights and Freedoms and the Privacy Act, and are reinforced by FINTRAC’s own operational policies and security measures. Under the Act, FINTRAC can only make a disclosure of designated information to appropriate police forces and prescribed law enforcement and security agencies. Furthermore, the legislation clearly states that information may be disclosed and sets out specific thresholds that must be met before FINTRAC is able to disclose it. In addition, pursuant to subsection 72(2) of the Act, the Privacy Commissioner is required to conduct a biennial review of the measures taken by FINTRAC to protect information it received or collects, and to report the results of these audits to Parliament.

Implementation, compliance and enforcement, and service standards

These regulatory amendments come into force on the day on which they are registered.

Under the Act, FINTRAC is designated as Canada’s financial intelligence unit and the regulator responsible for administering and enforcing the Act and its regulations. As a regulator, FINTRAC’s responsibilities include the overall supervision of reporting entities to determine compliance with the Act and regulations. Reporting entities are required under the Act to comply with FINTRAC’s information demands and to give all reasonable assistance when FINTRAC carries out its compliance responsibilities.

These regulatory amendments will result in a similar compliance approach already taken by FINTRAC for existing money services businesses. As these amendments primarily extend coverage to crowdfunding platforms and payment service providers as new money services businesses, or foreign money services businesses, as applicable, rather than introduce new regulatory requirements to the AML/ATF Regime, the regulatory implementation process for FINTRAC as the regulator is expected to align with their regular course of business.

Once the amendments are approved and published in the Canada Gazette, Part II, FINTRAC will update its guidance and policy interpretations to set out its expectations for how obligations are to be met as well as undertake possible outreach activities to ensure that new and current reporting entities are aware of the new requirements.

FINTRAC is already undertaking preparatory measures to implement these changes permanently. This includes building on its experience of enforcing the measures directed at crowdfunding platforms and certain payment service providers under the Emergency Economic Measures Order, providing pre-registration services to affected crowdfunding platforms and payment service providers, adjusting regulatory guidance and policy interpretations to implement this new policy direction, and informing these new reporting entities of their obligations to assist in their compliance.

There have been other recent amendments to these Regulations. A similar implementation approach would be pursued for these amendments. For example, FINTRAC would focus its compliance activities on registration requirements and educating impacted sectors on their obligations under the Act and Regulations. The primary goal is to educate the entities and allow them to build a compliance program in advance of any compliance examinations by FINTRAC. This approach is intended to limit impacts on industry and avoid any unnecessary costs where possible.

Going forward, FINTRAC would be responsible for enforcing the obligations and would include them into its compliance examinations and processes. Should non-compliance be identified, FINTRAC could impose administrative monetary penalties or take other enforcement actions.

Contact

Julien Brazeau
Director General
Financial Crimes and Security Division
Department of Finance Canada
Email: Julien.Brazeau@fin.gc.ca