Following our Blakes Bulletin: Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act Regulations – Part 1, on April 27, 2022, the Department of Finance published amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (Regulations) in the Canada Gazette. As noted in the bulletin, the amendments to the Regulations are now in effect. Although there is generally a 90-day comment period, the Regulatory Impact Analysis Summary (Statement) that accompanies the Regulations justifies the immediate effectiveness of the Regulations, noting that the lack of oversight of platforms crowdfunding and payment service providers presents a “serious and immediate problem”. risk to the safety of Canadians and to the Canadian economy” and that, indeed, the industry had already been informed of this eventuality during recent government press conferences.
As a result of these changes, crowdfunding platforms and payment service providers are now subject to the monetary services business requirements of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (RPCFAT). In this regard, the statement indicated that as a result of this policy change, FINTRAC will be revising its previous policy interpretations so that businesses that provide merchant services (i.e. providing settlements directly to merchants at the name of merchant 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 to the LRPCFAT.
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 who previously relied on the exemption for payment processing and other related services. Moreover, it comes into force immediately, which does not give newly regulated entities the opportunity to prepare for a complex and onerous regulatory regime by developing appropriate policies, procedures and risk assessments. Fortunately, in a statement released by FINTRAC, they acknowledge that there will be “difficulties” in meeting certain obligations and agree to be reasonable in their approach to assessment and enforcement.
This legislative amendment significantly expands the scope of Canada’s money laundering legislation and the entities that are now subject to it. There will be a significant amount of work 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 a reassessment by all financial entities as to who their account holders are and whether they now fall under the category of payment service providers.
Many questions remain unanswered. In addition to payment service providers, FINTRAC has also always considered that certain entities are not meant to be covered by the PCMLTFA as MSBs where they do not send funds “for the service”, but rather for purposes accessories. Will this interpretation still hold? What does this mean for e-commerce platform providers? What about the circumstances in which accounts are opened in the name of a financial entity for the benefit of underlying customers (FBOs) when the payment service provider does not “receive” the funds? Does the FBO structure work in Canada? How will Revenu Québec see these changes under the Quebec system?
FINTRAC has indicated that it will issue guidance regarding the new requirements. Hopefully these will provide more clarity, but that remains to be seen.
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Blakes periodically offers documents on trends and new facts in the legal field to those who want them. This article is for informational purposes only and does not constitute legal advice or an opinion on any subject. We will be happy to provide you with additional details or advice on specific situations if you wish. For permission to reproduce articles, please contact Blakes Marketing and Communications at 514-982-4026 or by email at [email protected]. © 2019 Blake, Cassels & Graydon LLP