New emergency measures: implications for financial services providers
In response to the ongoing blockades and protests against pandemic restrictions, on February 14, 2022, the federal government invoked the Emergencies Act for the first time since that legislation was passed in 1985. On February 15, the Proclamation Declaring a Public Emergency was published in the Canada Gazette, along with the Emergency Economic Measures Order, SOR/2022-22 (the Order) and the Emergency Measures Regulations, SOR/2022-21 (the Regulations). These measures, which came into effect on February 15, impose additional obligations on certain reporting entities that are already subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PCMLTFA), and extend obligations to entities currently not subject to the PCMLTFA, such as crowd-funding platforms and payment services providers.
Who is subject to these measures?
Section 3 of the Order sets out a list of entities that have additional obligations with respect to designated persons engaged in prohibited activities as set out in the Regulations. These include certain entities that are already subject to the PCMLTFA, namely banks and authorized foreign banks, credit unions, insurance companies, trust and loan companies, securities dealers, and money services businesses.
The Order also sweeps within its ambit two categories of entities that are not currently subject to the PCMLTFA:
- Entities that provide a platform to raise funds or virtual currency through donations (crowd-funding platforms); and
- Entities that perform any of the following payment functions (payment service providers):
- the provision or maintenance of an account that, in relation to an electronic funds transfer, is held on behalf of one or more end users,
- the holding of funds on behalf of an end user until they are withdrawn by the end user or transferred to another individual or entity,
- the initiation of an electronic funds transfer at the request of an end user,
- the authorization of an electronic funds transfer or the transmission, reception or facilitation of an instruction in relation to an electronic funds transfer, or
- the provision of clearing or settlement services.
Payment service providers who have been closely following the Retail Payment Activities Act will recognize the list of entities that perform payment functions set out in 3(l) of the Order, which mirrors the definition of “payment service providers” in the Retail Payment Activities Act (the RPAA). We have previously written about the RPAA.
What are the key obligations?
Duty to cease dealings
All entities subject to the Order have an immediate obligation to cease: dealing in any property that is owned, held or controlled by a designated person or by a person acting on behalf of or at the direction of that designated person (collectively, Designated Persons) facilitating any transactions relating to such dealings; making property, including funds or virtual currency, available to Designated Persons; or providing any financial or related service to or for the benefit of Designated Persons.
A person is a Designated Person if they are an individual or entity that is engaged, directly or indirectly, in an activity prohibited by sections 2 to 5 of the Regulations, which includes:
- participating in a public assembly that may reasonably be expected to disrupt the movement of persons or goods or interfere with trade, interfere with the functioning of critical infrastructure, or support the threat or use of acts of serious violence against persons or property, and
- using, collecting, making available or inviting a person to provide property to facilitate or participate in such an assembly or for the purpose of benefiting any person who is facilitating or participating in such an activity.
This means that all entities subject to the Order must freeze or suspend any account associated with a Designated Person – no court order is necessary.
Duty to determine
All entities subject to the Order must determine on a continuous basis whether they are in possession or control of property that is owned, held or controlled by or on behalf of a Designated Person. While the Order does not specifically define how these entities must discharge their obligation to “continuously determine”, the Office of the Superintendent of Financial Institutions (OSFI) has set out guidance for federally regulated financial institutions with respect to similar sanctions screenings that may provide helpful context. OSFI expects sanctions screenings to be completed at least weekly, or more frequently in certain high-risk circumstances or for larger institutions. Beneficial owners and third parties must be scoped into the screenings to the extent such information is available to the screening institution. While not directly applicable, OSFI’s guidance may be a helpful starting point for entities subject to the Order as they quickly ramp up internal screening processes to comply with the Order.
If a crowd-funding platform or a payment service provider determines that it is in possession or control of property that is owned, held or controlled by or on behalf of a Designated Person, the crowd-funding platform or payment service provider must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). In ordinary circumstances, only money services businesses (MSBs) are required to register with FINTRAC. We expect that crowd-funding platforms and payment service providers that determine they are required to register should follow the MSB registration process.
Crowd-funding platforms and payment service providers that need to register with FINTRAC have the reporting obligations set out in sections 4(2) and (3) of the Order, which include the following:
- reporting suspicious transactions,
- reporting large cash or virtual currency transactions ($10,000 or more in cash or virtual currency in a single transaction or series of transactions in a 24-hour period), and
- reporting certain international electronic funds transfers ($10,000 or more in a single transaction or series of transactions in a 24-hour period).
These entities will need to rapidly familiarize themselves with these types of reports and will need to develop comprehensive procedures to identify, investigate, escalate and submit all reportable transactions. We expect that entities that do not have access to the FINTRAC portals will be required to report using paper-based methods.
In addition, all entities subject to the Order have a duty to disclose the following to the Commissioner of the Royal Canadian Mounted Police or to the Director of the Canadian Security Intelligence Service without delay:
- the existence of the property in their possession or control that they have reason to believe is owned, held or controlled by or on behalf of a Designated Person, and
- any information about a transaction or proposed transaction in respect of such property.
Measures under the Emergencies Act are intended to be temporary, and will expire after 30 days unless the declaration is prematurely revoked or subsequently extended by both the House of Commons and the Senate. However, it has been reported that the government is bringing forward a bill that would amend the PCMLTFA to permanently capture crowd-funding platforms and payment service providers as reporting entities subject to regulation by FINTRAC. This situation is evolving and we will continue to monitor it closely.