The entire mortgage industry saw its regulations change on 11 October as FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada) has implemented new compliance obligations to accompany their anti-money laundering (AML) rules. FINTRAC has been charged with analyzing and monitoring financial transactions to fight such maneuvers as sanctions evasion, money laundering, and even terrorist financing.
FINTRAC had previously just held oversight over life insurance companies, credit unions, and banks before expanding its authority to include mortgage providers as well. The purpose of that expansion is to guarantee that these businesses also implement controls to stop suspicious activity in its tracks.
What are the implications of the new rules for the mortgage industry?
As with other expansions of government oversight, mortgage lenders have responded with approval for the desire to keep money laundering and terrorist financing out of the mortgage industry – but also with skepticism about having to deal with more regulations.
In general, mortgage providers that fall under the new guidelines have to create a program for compliance that includes client identification verification, thorough recordkeeping, and reporting of certain financial transaction types to FINTRAC. Some of the transactions covered under these rules include international electronic funds transfers, large virtual currency and cash transactions, as well as other suspicious activities that have the potential for connection to terrorist financing or money laundering. Such processes as risk analysis, Suspicious Transactions Reports (STR) documentation, ID verification and screening, and ongoing due diligence have all increased in rigor, which means more training, more technology, new processes and extra costs. When identification of politically exposed persons (PEPs) is involved, then such extra due diligence as finding the funding source may be necessary. Keeping track of this documentation is required for at least five years.
In the case of brokerages, the requirements include establishing the compliance program, designating a compliance officer, and then managing transaction monitoring, client identification, recordkeeping, and reporting. Individual brokers have to abide by these rules in their dealings with clients and complete the training that their brokerage requires. This should include training on the most recent ATF/AML requirements, including strategies for identifying and reporting suspicious transactions. When cash and virtual currency transactions exceed $10,000, they should be reported to FINTRAC. Identity strategies include relying on credit checks and government-issued IDs. When clients represent a higher risk, monitoring their financial activity is an important step.
The timeline for reporting designated activities is “as soon as possible” and should include any transactions falling under the “Suspicious Transactions” designation that brokers and brokerage professionals receive from FINTRAC. Every cash transaction of at least $10,000 should be reported using a Large Cash Transaction Report unless the funds come from public entities or financial institutions. FINTRAC has an online portal called the Web Reporting System, where businesses should file their reports. FINTRAC also has an API for system-to-system transfers when mortgage entities use mortgage platforms that are compatible.
FINTRAC has established penalties for non-compliance that vary with the violation’s severity. For minor infractions, the maximum fine is $1,000 while those penalties can grow to $100,000 for individuals and $500,000 for businesses, depending on the seriousness. Criminal charges, fines as high as $2 million and prison time can accompany extreme cases. Repeat violators can have their licenses stripped.
Lenders, administrators and brokers within the mortgage industry are all subject to the new regulations. FINTRAC has provided an online tool for professionals to use to determine if the new requirements apply to them. The link to the tool is here.
Amansad welcomes these changes as most were already being done, but also will remove many bad actors that float in the industry. Nothing wrong with good guardrails with good intentions.