Written By Simon Grant, Mark Lewis, Suzana Lobo and Karly Descoteaux
Non-bank mortgage lending entities would become subject to the anti-money laundering and anti-terrorist financing (AML/ATF) obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PCMLTFA) pursuant to draft amending regulations (the Proposed Regulations) released for consultation by the Department of Finance on February 18, 2023.
The federal government has provided a 30-day consultation period (which is open until March 20, 2023) during which affected parties and others in the public are invited to review the Proposed Regulations and provide comments before the consultation period concludes.
Regulated financial institutions involved in mortgage lending, such as banks, loan companies, trusts and credit unions, have long been subject to AML/ATF obligations under the PCMLTFA. The Proposed Regulations expand the scope of the AML/ATF obligations to include persons and entities of all sizes involved in the mortgage lending process (defined as "mortgage lending entities"):
- Mortgage lenders: Providing loans secured by mortgages on real property or hypothecs on immovables.
- Mortgage brokers: Acting as an intermediary between a mortgage lender and a borrower as authorized under provincial legislation.
- Mortgage administrators: Servicing mortgage agreements on real property or hypothec agreements on immovables on behalf of a lender.
Under the Proposed Regulations, mortgage lending entities would be subject to FINTRAC regulatory oversight and have obligations equivalent to those of other reporting entities under PCMLTFA, including:
- developing a compliance program;
- applying customer due diligence measures (e.g., identity verification and beneficial ownership requirements);
- record keeping (e.g., storing client identification records);
- transaction reporting to FINTRAC (e.g., submit suspicious transaction and terrorist property reports as well as large cash transaction reports); and
- following ministerial directives and transaction restrictions when funds go to or come from certain countries.
A range of administrative monetary penalties are also proposed for the new requirements depending on the harm and a reporting entity's history of compliance. The administrative monetary penalties include up to $1,000 per violation for a "minor" violation and up to $100,000 per violation for a "serious" violation and up to $100,000 for individuals and up to $500,000 per violation for an entity for a "very serious" violation.
Once the consultation period concludes, and subject to any further changes, the Proposed Regulations are expected to come into force six months after the publication in the Canada Gazette. The government has stated that FINTRAC will be providing industry outreach in the intervening period and the Department of Finance may provide additional transition time to delay the coming into force of the amendments to permit adequate time for compliance with the Proposed Regulations.
In anticipation of the above-noted amendments coming into force, mortgage-related businesses affected by the Proposed Regulations should review their existing AML/ATF processes and procedures to determine what changes or additions will need to be implemented in order to comply with the Proposed Regulations. The Proposed Regulations can be reviewed here.
We continue to monitor the progress of the Proposed Regulations and their application to various mortgage-related businesses. For questions about the Proposed Regulations or their applicability to your business, or regarding your existing AML/ATF compliance program, please contact a member of our Financial Services group or Commercial Real Estate group.