Impact of Canada’s Evolving AML Regimes on Your Business

Canada’s AML regulations changed a lot in 2019. More rigid AML regulations are imposed on all types of businesses to reduce money laundering and terrorist financing in Canada. These new regulations will enhance the due diligence practices of companies as digital customer onboarding is allowed to the businesses. 

The government of Canada amended the regulations of Proceeds of Crime Money Laundering and Terrorist Financing Act (PCMLTFA). FINTRAC (Financial Transactions and Report Analysis Center) will be implementing the new AML regulations. 

FINTRAC is an independent federal body in Canada that is responsible for collecting and analyzing the information to detect and prevent money laundering and terrorist financing in Canada. 

The new Regulations are designed to align the Anti Money Laundering (AML) and terrorist financing regulations with the international regulations of FATF (Financial Action Task Force). 

The amendments were introduced in June 2019 after the analysis of the 2016 report by FATF. The report stated that Canada has been the hub of money laundering, real estate, and other industries that are used to launder money to and from Canada. 

Not only that the Mauren Maloney’s report on moany laundering in Canada also highlighted that money laundering is not limited to a few states of Canada. The report estimated that a total of $46.7 billion were laundered through Canada’s economy last year. While British Columbia was responsible for roughly $7.4 billion. 

Based on such shocking facts, Canadian regulatory bodies are keen to control money laundering in Canada, as it is expected that these revelations might be the tip of an iceberg. The latest amendments are designed to bridge the loopholes in digital financial operations and to regulate the unregulated domestic and international entities. 

Key initiatives proposed by the new regulations are as follows:

Digital KYC is possible

Reporting Entities (REs) will be allowed to accept photocopies or scanned copies of identity documents for performing due diligence. In the past, physical documents were required for identity verification of the customers. Customers were required to visit brick and mortar outlets of banks and other financial institutions to register. 

Now that scanned copies of documents are also considered legal, businesses can utilize digital customer onboarding software to onboard clients fastly. Clients can be verified online within a few minutes. It will reduce the hassle of manual customer verification software. This new amendment will improve the customer value of banks and will prevent risk as online identity verification & AML software provide high precision in results. 

Regulation of Money Services Businesses (MSBs)

Money Services Businesses that provided online services are the loophole, exploited by money launderers and terrorist financiers. The latest amendments have addressed this security concern. 

Domestic as well as foreign MSBs will have to follow the same due diligence, recording and reporting regulations. The new regulations will enable FINTRAC to levy administrative monetary penalties on foreign MSBs and will lead to cancellation of their FINTRAC registration if not paid. 

Also, financial institutions within Canada will not be allowed to do business with unregistered MSBs. So, it will tighten the reigns on money launderers and will help financial regulatory authorities to improve the credibility of Canada among other states.

The international MSB’s dealing in Canada will need to run Identity verification on their clients to fulfill the regulations otherwise FINTRAC holds the right to charge financial penalties. 

Virtual Currency Businesses

Virtual currency businesses will be added to PCMLTFA regulations. Virtual currency exchanges and value transfer services would be regulated as MSBs. They will be liable for AML, reporting and record-keeping regulations as well. Also, the virtual currency businesses will have to report any transaction above $10,000. 

Prepaid Access Products will be added to the REs (Reporting Entities) that offer bank accounts. The Prepaid access products providers will have to verify the identity of clients, keep records and report suspicious transactions. All the rules that apply to REs that offer bank accounts will be applied to prepaid access products. 

AML Reporting standards

Previously the financial sector was obliged to report suspicious transactions within 30 days. Now FINTRAC aims at aligning its regulations with international regulations of FATF, reporting must be practiced within 3 days of a suspicious transaction. 

What businesses need to do about these amendments?

With changes in PCMLTFA regulations, businesses will have to change their AML compliance practices aswell. Digital KYC and AML solutions will help them in complete compliance as international MSBs working in Canada will also be required to perform AML on their clients. 

Internet-based businesses especially the virtual currency businesses will have to follow the international due diligence, recording and reporting regulations. All these regulations will not only impact the AML compliance practices of businesses and financial institutions but will enhance their risk cover against money launderers and terrorist financiers. 

Digital KYC and AML software are feasible solutions to keep up with new AML regulations. It provides high precision results within a minute. And runs continuous checks on high-risk clients, reducing the compliance hassle of banks and businesses.