compliance requirements

The federal government is of the view that by making this sector subject to the Act and its related regulations, this sector will be less vulnerable to being misused in this way. It feels this reduced vulnerability will lead to less crime and terrorist activity in society.

The Change

The Act targets deterring, detecting, investigating and prosecuting money laundering and terrorist financing. Importantly, it requires “reporting entities” (specified businesses and occupations) to develop and implement compliance programs, including processes to identify clients, monitor business relations, keep records, and report specified types of financial transactions. Significantly, the Act establishes the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) as Canada’s primary anti-money laundering and anti-terrorist financing agency.

FINTRAC is both a regulator and financial intelligence unit. It enforces the requirements imposed on reporting entities and produces data and records to assist national and international agencies to combat money laundering and terrorist financing.

Mortgage brokers, lenders and administrators have to date not been included as reporting entities and so have not been subject to the Act or FINTRAC’s requirements. Others in the financing sector (such as banks, trust companies, loan companies and federal credit unions) have been included as reporting entities for quite some time.

The federal government believes that not including mortgage brokers, lenders and administrators as reporting entities for purposes of the Act makes them more vulnerable to being exploited for money laundering and terrorist financing purposes.

The vulnerability for this group relates particularly to both receiving funds that are proceeds of crime (for example, down payments and repayments of loans) and lending potential proceeds of crime to clients. The federal government believes including entities of all sizes that are involved in the mortgage lending process (mortgage originators, lenders/ underwriters and administrators) as reporting entities would reduce the vulnerabilities of these entities being misused for money laundering or terrorist financing activities. Accordingly, the published draft regulations would include mortgage brokers, mortgage lenders and mortgage administrators as “reporting entities.” The proposed definitions are sufficiently broad that together they would take in most persons engaging in the mortgage arranging and administering process. Specifically, they provide: n “mortgage broker”: a person or entity that is authorized under provincial legislation to act as an intermediary between a mortgage lender and a borrower; n “mortgage lender”: a person or entity, other than a financial entity, that is engaged in providing loans secured by mortgages on real property or hypothecs on immovables; (Note: Financial entities are covered otherwise than by this definition.) n “mortgage administrator”: a person or entity, other than a financial entity, that is engaged in the business of servicing mortgage agreements on real property or hypothec agreements on immovables on behalf of a lender.

The Impact Of The Change

If you operate within any of these definitions, you are a reporting entity and will be required to comply with the Act, the regulations and FINTRAC requirements.

So what are the requirements?

Unless the regulations are amended before they are brought into force, you will need to: n Apply customer due diligence measures; n Keep appropriate records; n Report certain types of transactions; n Have a compliance officer; n Have a compliance program in place; n Have a training program in place; n Have a training plan in place; and n Review your compliance program at least every two years.

The Takeaway

Suffice to say that by virtue of being included as a reporting entity for purposes of the Act, the compliance requirements imposed on mortgage brokers, lenders and administrators will increase significantly. For a more detailed discussion of the contents of the compliance program, as it concerns money laundering and terrorist financing, please read the companion article in this magazine (p.24).

This article is not intended as legal advice. You are advised to obtain legal advice in specific instances.