FINTRAC announces flexible compliance approach for upcoming Canadian anti-money laundering changes
Wide-reaching changes overhauling Canada’s anti-money laundering regime under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) will come into force on June 1, 2021 (the June 1 amendments), and a flurry of new and updated guidance documents were published by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) in February, March and May of this year that will also take effect on June 1. With June 1 fast approaching, FINTRAC published a Notice on May 18 that acknowledges the wide scope of the amendments due to come into force in June, and the difficulties entities subject to the PCMLTFA (reporting entities) may encounter in meeting those obligations.
FINTRAC promises to exercise flexibility and reasonableness when assessing reporting entities’ compliance with the June 1 amendments, and will not begin to conduct compliance assessments with respect to the new obligations until April 1, 2022. From June 1, 2021 to March 31, 2022, FINTRAC will only assess compliance against the regulatory regime in force prior to June 1, 2021. FINTRAC did note that it may assess transactional information as prescribed by the June 1 amendments prior to the April 1, 2022 date, but would exercise an amount of flexibility in such assessments. In its Notice, FINTRAC also noted that it expects to publish an updated Assessment Manual by March 31, 2022 and updated harm done assessment guides by spring 2022.
For those reporting entities that have already updated their compliance programs to reflect the new regulatory requirements, FINTRAC noted that it will review the most up-to-date compliance program elements, which will provide reporting entities with feedback to help meet the requirements of the June 1 amendments.
Despite this more relaxed standard, FINTRAC explicitly noted that it does expect full compliance with large virtual currency transaction reporting requirements and electronic funds transfer reporting requirements beginning June 1, 2021 – although it will permit some interim measures prior to December 1, 2021, as discussed below.
While some relief was expected, this flexible approach to almost all of the June 1 amendments will come as welcome news to many reporting entities as it will provide some additional time to update and operationalize new policies and procedures and implement any required technology uplifts.
Large Virtual Currency Transaction Reports
One of the key changes due to come into effect as part of the June 1 amendments will be the new Large Virtual Currency Transaction Reports (LVCTR) obligations, which all individuals and entities with obligations under the PCMLTFA must submit when receiving an amount in virtual currency equivalent to $10,000 or more in a single transaction (or series of transactions under the 24-hour rule). While FINTRAC noted that compliance with these requirements is still required as of June 1, 2021, it provided for permitted interim measures if the full LVCTR obligations cannot be met. For those unable to meet their obligations with respect to LVCTRs, FINTRAC expects that reporting entities will at a minimum comply with the following:
- keep records of reportable transactions as of June 1, 2021;
- complete the implementation of the LVCTR reporting system as soon as possible and no later than December 1, 2021; after that date, LVCTRs must be submitted within five working days; and
- submit all unreported large virtual currency transactions for the period of June 1, 2021 to November 30, 2021 via the FINTRAC Upload or the FINTRAC web reporting system (F2R) as soon as possible but no later than March 31, 2022.
FINTRAC will require everyone to comply with the LVTCR requirements on or before December 1, 2021.
LVCTRs can be submitted to FINTRAC beginning on June 1, 2021 via FINTRAC Upload. The FINTRAC web reporting system does not currently support the submission of LVCTRs; FINTRAC expects to expand its web reporting capabilities to include LVCTRs at some point in the fall of 2021. A specific target date has not been announced yet.
Electronic Funds Transfer Reports
Unlike the more flexible compliance approach detailed above with respect to LVCTRs, FINTRAC has articulated in its Notice a somewhat higher standard of expected compliance with the new Electronic Funds Transfer Reports (EFTRs) requirements as of June 1, 2021.
When the amendments to the regulations come into force on June 1, reporting entities will be required to submit EFTRs to FINTRAC only when acting as the final recipient of international electronic funds transfers of $10,000 or more in a single transaction (or series of transactions under the 24-hour rule) or when initiating international electronic funds transfers of $10,000 or more in a single transaction (or series of transactions under the 24-hour rule).
Over-reporting: As a general matter, FINTRAC considers instances of over-reporting to be compliance breaches. Accordingly, EFTRs that do not meet either of the above criteria must not be submitted to FINTRAC as of June 1, 2021 – even if an EFTR would have been warranted under the regime in place prior to June 1. If over-reporting occurs, reporting entities are expected to submit a voluntary self-declaration of non-compliance to FINTRAC and delete the EFTR from FINTRAC’s database as soon as possible.
Under-reporting: If an entity with obligations to report EFTRs does not have a system in place on June 1 to submit EFTRs as required under the June 1 amendments and is consequently under-reporting EFTRs when the amendments come into force, FINTRAC expects the reporting entity will:
- submit a voluntary self-declaration of non-compliance;
- keep records of all reportable transactions;
- update or implement its reporting system to comply with the requirements as soon as possible but no later than December 1, 2021; and
- submit unreported EFTRs for the period of June 1, 2021 to November 30, 2021 as soon as possible and no later than March 31, 2022.
Except for the regulatory changes with respect to LVCTRs and EFTRs discussed above, FINTRAC will not require the submission of voluntary self-declarations of non-compliance for failure to comply with the amendments coming into force of June 1, 2021. This grace period will extend through November 30, 2021. Voluntary self-declarations of non-compliance should still be submitted for non-compliance with the requirements in force prior to June 1 and that remain in force under the June 1 amendments.
More information about the June 1 changes and the new and updated guidance can be found in our recent post and our comprehensive Client Guide, which has been prepared to help orient businesses and individuals as they navigate the new regime.