Understanding The New FINTRAC Changes: What Mortgage Brokers Need to Know

Understanding The New FINTRAC Changes: What Mortgage Brokers Need to Know

On October 11, 2024, significant changes will take effect under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), which will impact mortgage brokers, administrators and lenders in Canada. These requirements will be administered by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). It is essential for professionals in the mortgage industry to understand and prepare for these changes to ensure compliance.

Why These Changes Matter

Money laundering and terrorist financing in Canada poses a significant risk to the mortgage services industry. Real estate transactions are often used to disguise illegal funds by integrating them into the legitimate financial system. To combat this, FINTRAC is requiring mortgage brokers, administrators and lenders to implement anti-money laundering and anti-terrorist financing compliance programs.   

As the frontline of financial transactions in the industry, mortgage brokers play a crucial role in detecting illicit activities. These regulations are designed to ensure due diligence, competent record-keeping and timely reporting, better ensuring the safety of the industry and the public.

The Key Changes to FINTRAC Requirements

  • Implementing a Compliance Program

All mortgage brokers and related industry entities are required to establish a compliance program with the following in place:

    • Appointment of a Compliance Officer to oversee the implementation and maintenance of the compliance program.
    • Development of Written Policies to address due diligence, risk assessment and FINTRAC reporting. Special measures are also required for high-risk scenarios. 
    • Risk Assessments to be conducted regularly to identify vulnerabilities to money laundering or terrorist financing.
    • Ongoing Training for employees to ensure they are up-to-date on the latest AML and ATF requirements. 
    • Program Reviews every two years to look for and address and gaps or weaknesses. 
  • Know Your Client Requirements

Identity verification is mandatory for mortgage brokers when establishing a new relationship with clients. Specific and more high-risk scenarios will require more due-diligence, such as:

    • Suspicious transactions
    • Large cash transactions
    • Large virtual currency transactions
    • Receipt of funds
    • Mortgage loan records

In situations where a third party is involved in large financial transactions, obtaining detailed information of the third party and their relationship with the client is required.

  • Reporting Obligations

FINTRAC requires mortgage brokers to report specific transactions including:

    • Large Cash Transaction Reports (LCTR). Reports must be submitted for transactions of $10,000 at a time. Amounts are calculated based on the 24-hour rule which states that multiple transactions of the same type within a 24-hour period are aggregated. If the total in that 24-hour window is $10,000 or more, the LCTR must be submitted. There is a 15-day deadline to submit these reports from the date of the transaction. 
    • Large Virtual Currency Transaction Reports. Submission of this report is requirement when virtual currency received is equal to or greater than $10,000. There is a 5-day deadline to submit these reports from the date of the transaction. The 24-hour rule also applies to the virtual currency received. 
    • Terrorist Property Reports (TPR). If property is known to be linked to terrorists or terrorist organizations, it must be reported immediately. 
    • Suspicious Transaction Reports (STR). If there are reasonable grounds to suspect that a transaction is related to money laundering or terrorist financing, a report must be filed immediately.
  • Record-Keeping Obligations

Mortgage brokers must maintain comprehensive records for a minimum of 5 years. These records should include:

    • All copies of reports sent to FINTRAC
    • Records of large cash or virtual currency transactions
    • Client identification records
    • Mortgage transaction records
    • Records related to business relationships and ongoing monitoring 
    • Third party determination records

Keeping accurate and complete records is essential for compliance with the regulatory obligations from FINTRAC and will be subject to review during any FINTRAC compliance examinations.

Penalties for Non-Compliance

The penalties for non-compliance vary based on the severity of the violations and include:

Minor violations with fines ranging from $1 to $1,000 per violation

Serious violations with fines ranging from $1 to $100,000 per violation

Very serious violations with fines ranging from $1 to $500,000 per violation depending on whether it is based on an individual or an entity

Considerations for Mortgage Brokers

A full understanding of these requirements is essential for all mortgage brokers operating in Canada. Failure to comply may be viewed as conducting business in a manner prejudicial to the public interest under section 8(1)(i) of the Mortgage Brokers Act. It is crucial for mortgage brokers to not only meet these legal obligations but also to uphold the integrity of the mortgage industry. By implementing rigorous compliance measures, brokers help combat money laundering and terrorist financing in Canada, ensuring the mortgage industry remains a trusted component of the financial system.

For additional information, further resources are available on the CMBA-BC website here: https://www.cmbabc.ca/cmba-bc-resources-on-the-application-of-new-fintrac-requirements/  

There are also resources available on FINTRAC’s website here: https://fintrac-canafe.canada.ca/re-ed/mortgage-hypotheque-eng.