FINTRAC Announces Flexible Compliance Approach For Upcoming Canadian Anti-money Laundering Changes – Compliance



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.

Declaring non-compliance

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.

Client Guide

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.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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