Finance

Department of Finance Publishes Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations | Blake, Cassels & Graydon LLP

Further to our Blakes Bulletin: Changes to Regulations Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act – Part 1, on April 27, 2022, the Department of Finance published the amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (Regulations) in the Canada Gazette. As noted in the bulletin, the changes to the Regulations are now effective. While there is usually a 90-day consultation period, the regulatory impact analysis statement (Statement) that accompanies the Regulations justifies the immediate effectiveness of the Regulations, noting that the lack of oversight of crowdfunding platforms and payment service providers presents a “serious and immediate risk to the security of Canadians and to the Canadian economy” and that, effectively, the industry was previously advised of this eventuality in recent government news conferences. 
 
As a result of these amendments, crowdfunding platforms and payment service providers are now subject to the money services business requirements of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). In that regard, the Statement noted that due to this policy change, FINTRAC will revise its previous policy interpretations so that businesses that provide merchant services (i.e., the provision of settlements directly to merchants on behalf of the merchant’s customers for the purchase of goods and services), as well as payment processing for utility bills, mortgage and rent payments, payroll services and tuition payment services would be subject to the PCMLTFA.
 
The scope of these changes is incredibly significant. The Statement notes that this policy change is expected to affect approximately 1,000 payment service providers that were previously relying on the exemption for payment processing and other related services. Moreover, it comes into effect immediately, which does not provide newly regulated entities the opportunity to prepare for being subject to a complex and onerous regulatory regime by preparing proper policies, procedures and risk assessments. Thankfully, in a statement published by FINTRAC, they acknowledge that there will be “challenges” in meeting certain obligations, and agree to be reasonable in their assessment and enforcement approach. 
 
This legislative amendment significantly expands the scope of Canadian anti-money laundering legislation and the entities that are now subject to it. There will be a significant amount of work required to be undertaken by those engaged in the payments industry to bring them into compliance with the PCMLTFA. Moreover, this change affects not only payment service providers and crowdfunding platforms, but also financial entities. Specifically, financial entities are prohibited under the PCMLTFA from opening accounts for foreign money services businesses (MSBs) that are not registered with FINTRAC. This will require re-assessment by all financial entities in respect of who their account holders are, and whether they now fall within the payment service provider category.
 
Many questions remain unanswered. In addition to payment service providers, FINTRAC has also historically taken the view that certain entities are not intended to be caught by the PCMLTFA as MSBs where they do not send funds for “the sake of the service” but rather for an ancillary purpose. Will this interpretation still stand? What does this mean for e-commerce platform providers? What about circumstances where accounts are opened in the name of a financial entity for the benefit of (FBO) underlying clients where the payment service provider does not “touch” the funds? Does the FBO structure work in Canada? How will Revenu Quebec view these changes under the Quebec regime?
 
FINTRAC has indicated that it will publish guidance in respect of the new requirements. Hopefully these will bring more clarity, but it remains to be seen.

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