Starting tomorrow, mortgage brokers and lenders across Canada will face new compliance obligations as part of FINTRAC’s enhanced anti-money laundering (AML) regulations.
FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada) is the federal body responsible for monitoring and analyzing financial transactions to combat money laundering, terrorist financing, and sanctions evasion.
It already oversees entities such as banks, credit unions, and life insurance companies. By expanding its regulatory scope to include the mortgage industry, FINTRAC aims to “strengthen Canada’s financial system” by ensuring mortgage businesses implement controls to prevent and report suspicious activities.
“Canada’s updated assessment of inherent risks of money laundering and terrorist financing assessed unregulated mortgage lenders as being highly vulnerable to money laundering and terrorist financing,” FINTRAC said in a statement to CMT. “It also identifies mortgage fraud as a very high risk as it relates to money laundering.”
How is the mortgage industry responding to these new regulations?
While many stakeholders view FINTRAC oversight as a critical measure in tackling money laundering and terrorist financing in the mortgage sector, they are also concerned about the potential introduction of a regulatory burden on businesses.
Lauren van den Berg, President and CEO at Mortgage Professionals Canada (MPC), said the requirements an “important step towards building a strong and more transparent mortgage industry,” while calling on the FINTRAC to ensure the rules are “effective in tackling money laundering and mortgage fraud without creating too much red tape for brokers and the industry.”
“While there will be some growing pains in adapting to the new regulations, it’s all about finding that balance,” van den Berg told CMT.
“In our engagement with FINTRAC, MPC took a firm stance in challenging compliance requirements that our members viewed as unnecessary administrative burdens on their daily operations,” she added. “Ultimately, it’s about protecting consumers, maintaining the integrity of our industry, and safeguarding the broader economy. But we also want to make sure that compliance remains fair and manageable for everyone involved.”
Meanwhile, Joe Jacobs, Managing Partner at Mortgage Connection and outgoing Chair of MPC’s board of directors, raised concerns about how the cost of compliance could impact the operations of mortgage businesses.
“The most significant requirements that will impact mortgage transactions are the day-to-day, step-by-step processes that brokerages and practising mortgage professionals must implement,” Jacobs told CMT. “A more robust ID verification, screening, risk analysis, STR reporting and ongoing reporting requires adapting new processes, training, leveraging technology and taking on additional costs to meet the requirements.”
Meanwhile, Dave Teixeira, Executive Vice President for Operations at brokerage network Dominion Lending Centres Group (DLCG), pointed out that the new requirements “are nothing new.”
“Some mortgage agents might think we’re being picked on without realizing that some industries have had this for years,” Teixeira said, referencing the long-standing compliance requirements for real estate brokers and banks. “So, this is not new. It just feels overwhelming because it’s happening to us right now.”
Teixeira emphasized the importance of engaging with FINTRAC to understand the regulations. “Our stance at DLCG is that we will never be against anti-money laundering [action],” he said. “We’ve always run towards regulation, and we’ve had regular meetings with FINTRAC over the last few months to stay on track.”
He also highlighted the role of technology in reducing the burden of compliance.
“We realized very early on that compliance would be a greater burden on the agents without a technology solution,” said Teixeira. “This is why we’ve partnered with Newton [Connectivity Systems] to use their Velocity integrated mortgage system.”
For his part, Geoff Willis, CEO of Newton Connectivity Systems, warns of the consequences of a relaxed attitude towards compliance. “These are obligations from a regulator with a lot of teeth,” said Willis. “They’re serious about this.”
Willis stressed the importance of mortgage professionals adopting streamlined origination platforms to efficiently manage compliance and reduce potential risks.
“It’s going to be tougher and tougher to run an office where your originators are on different operating platforms,” he said. “If there’s no semblance of order in how your business is done, it will be very hard to have standardized compliance that includes ongoing monitoring.”
According to Willis, this is why addressing the compliance obligations of mortgage professionals is at the heart of Newton’s Velocity platform
Your questions answered: FINTRAC’s new AML rules for mortgage professionals
When do the new regulations take effect?
Starting tomorrow (Friday October 11, 2024), the mortgage sector will be subject to the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act, the same legislation that established FINTRAC as Canada’s AML watchdog.
Who must comply?
FINTRAC defines the mortgage sector as including lenders, administrators, and brokers. To assist the industry, FINTRAC provides an online self-assessment tool to help professionals determine if they must comply with the new requirements.
You can access the self-assessment tool here.
What are the new requirements?
Regulated mortgage entities must establish a compliance program, verify client identities, keep thorough records, and report certain types of financial transactions to FINTRAC. These include international electronic funds transfers, large cash and virtual currency transactions, and suspicious activities that may be linked to money laundering or terrorist financing.
Key obligations for mortgage brokerages
The compliance obligations outlined primarily apply to brokerages, which are responsible for setting up and maintaining a compliance program, appointing a compliance officer, and managing client identification, transaction monitoring, reporting, and record-keeping.
Individual brokers, however, must follow these policies in their daily work and ensure they complete any required compliance training set by their brokerage.
Staff training
Ensure your staff is trained on the latest AML/ATF requirements, including how to identify and report suspicious activity. Regular training is key to staying compliant.
Establish a compliance program
Create a compliance program that includes appointing a compliance officer, developing clear policies for identifying clients, keeping records, and reporting transactions. Regularly assess risks, especially for high-risk clients and transactions.
Know your client (KYC)
Verify the identity of clients before starting a business relationship. Use government-issued IDs or credit checks, and for higher-risk clients (like politically exposed persons), take extra steps such as monitoring their ongoing activity.
Ongoing monitoring and reporting
Keep an eye on your clients’ transactions and report suspicious activity or large cash transactions over $10,000. Virtual currency transactions over this amount also need to be reported.
Record keeping
Maintain detailed records of client identification, transactions, and reports for at least five years. This is crucial for ensuring you can prove compliance if audited.
Reporting transactions
Mortgage professionals are required to report certain activities to FINTRAC “as soon as practicable,” including Suspicious Transaction Reports (STRs) for any suspicious activity and Terrorist Property Reports if linked to terrorism. A Large Cash Transaction Report is mandatory for any cash transaction of $10,000 or more, except when the funds come from financial institutions or public bodies.
How to submit reports
Mortgage professionals can submit the required reports through FINTRAC’s Web Reporting System, an online portal designed for businesses to file reports quickly and efficiently. Additionally, reports can be submitted through system-to-system transfers using FINTRAC’s API if the mortgage entity uses a compatible mortgage platform.
Client identification requirements
Mortgage professionals must verify the identity of all clients before starting a business relationship, using approved methods like government-issued IDs or credit checks. For politically exposed persons (PEPs) and heads of international organizations, enhanced due diligence is required, which may involve gathering additional details like the source of funds. All records, including identity documents and related reports, must be securely maintained for a minimum of five years.
Penalties for non-compliance
FINTRAC imposes penalties based on the severity of the violation. Minor infractions can result in fines up to $1,000, while more serious violations may lead to penalties as high as $100,000 for individuals and $500,000 for businesses. In extreme cases, non-compliance could result in criminal charges, with fines reaching up to $2 million and even imprisonment. FINTRAC stresses that penalties are designed to encourage compliance, not just punish. Repeated or severe non-compliance can also lead to reputational damage and potential loss of licensing.
FINTRAC’s full guidance can be accessed here.
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AML anti-money laundering Dave Teixeira FINTRAC Geoff Willis joe jacobs Lauren van den Berg mortgage professionals canada regulations
Last modified: October 9, 2024
