In its recently released annual budget (the budget), the Government of Canada announced a number of measures that are expected to impact the financial services sector, including key changes to financial sector legislation and money laundering; an assessment of the digitization of money; accelerated development of a publicly accessible register of beneficial owners; and further consultations with stakeholders regarding credit card fees. Although the budget hints that changes to anti-money laundering legislation are coming, two days before the budget was tabled, the government enacted some changes to Canada’s anti-money laundering laws, which come into effect on the record date of April 5, 2022.
The budget proposes to make legislative changes to the Banking Act and the Financial Consumer Agency of Canada Act which provides for the creation of a unified external not-for-profit complaints body for banks. Additional targeted measures should further support this planned unified complaints system.
This announcement follows consultations by the Financial Consumer Agency of Canada on its draft guideline on complaint-handling procedures for banks and authorized foreign banks in fall 2021, and the publication of the final guideline, which will come into effect on June 30, 2022, as well as the federal financial consumer protection framework. We have previously written about the federal financial consumer protection framework.
The budget announced the government’s intention to undertake a legislative review of currency digitization as well as other measures aimed at strengthening and maintaining the stability and security of the financial sector. Although the scope of this initiative is still emerging, the first phase will target the security and stability risks posed by digital currencies, including cryptocurrencies and stablecoins, and explore the potential of a digital currency. central bank in Canada.
Fight against money laundering
Following temporary changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (RPCFAT) and its regulations (the Regulations) made earlier this year under the emergency law, the budget gave renewed attention to Canada’s anti-money laundering regime. Measures proposed under the budget include additional funding for the Financial Transactions and Reports Analysis Center (FINTRAC) to support the implementation of new requirements for crowdfunding platforms and payment service providers, and FINTRAC’s oversight of federally regulated financial institutions, among other operational priorities. The budget also provides funds to develop and design a new Financial Crimes Agency of Canada and commits to accelerate by two years the development of a searchable registry of beneficial owners, which will support AML/ATF efforts, and which will now be accessible before the end of 2023. Further legislative and regulatory changes are also expected for the PCMLTFA and its regulations to manage emerging threats and improve authorities’ ability to detect and deter money laundering. , terrorist financing and other financial crimes.
To this end, the first of these regulatory amendments, Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations entered into force on April 5, 2022 (the April Amendments). The April amendments expand the scope of the PCMLTFA to encompass “crowdfunding platform services”, which are defined as “the provision and maintenance of a crowdfunding platform for use by other persons or entities to raise funds or virtual currency for themselves or for persons or entities specified by them”. Any crowdfunding platform offering these services must register with FINTRAC as a Money Services Business (MSB) or foreign ESM, and implement a comprehensive anti-money laundering compliance program in accordance with the PCMLTFA.
In addition, under the April amendments, any MSB or foreign MSB offering crowdfunding platform services will also be required to maintain a record of information regarding any person or entity to which crowdfunding platform services are offered. ; a record of the purposes for which funds or virtual currency are collected; and, if the person or entity for whom the funds or virtual currency are being raised is different from the person or entity to whom the services are provided, the MSB or foreign MSB must maintain a record of their name and take reasonable steps to obtain their address, nature of principal business or occupation and date of birth (if applicable). MSBs and foreign MSBs offering crowdfunding services must also verify the identity of any person or entity to whom the crowdfunding platform services are offered, as well as any person or entity who donates an amount of $1,000 or more in funds or virtual currency.
It should be noted, however, that although the emergency orders earlier this year temporarily swept away a wide range of payment service providers under the PCMLTFA – and while the budget explicitly promised to expand Canada’s anti-money laundering regime to payment service providers – the April amendments only apply to crowdfunding platforms and do not prescribe any additional requirements for payment service providers (other than payment service providers who also fall under the definition of an MSB or a foreign MSB). Other amendments to the PCMLTFA intended to apply to payment service providers are likely to be made, although no such amendment has been published to date.
In addition to these changes affecting crowdfunding platforms, the April amendments also repeal part of the definition of “electronic funds transfer” under the Regulations.. Prior to the April Amendments, the definition of “electronic funds transfer” explicitly excluded any “transmission of instructions for the transfer of funds made using a credit or debit card or prepaid payment product if the recipient has an agreement with the payment service provider that permits payment by that means for the supply of goods and services.” The April Amendments repeal this exclusion in the definition of “electronic funds transfer” and instead exclude electronic funds transfers made through certain credit, debit and prepaid payment product transactions reporting, verification and record keeping obligations of financial entities and casinos.
This means that all MSBs and foreign MSBs have record keeping, customer identification and reporting obligations regarding certain debit, credit and prepaid payment product transactions that were previously excluded from the definition of “electronic funds transfer”. As a result, MSBs and foreign MSBs will need to review all customer record keeping, reporting and verification policies for electronic funds transfers in light of the April amendments in order to comply with the electronic funds transfer obligations of international funds made by means of a credit or debit card, or a prepaid payment product where the beneficiary has entered into an agreement with the payment service provider which authorizes payment by this means for the supply of goods and services .
Although the April changes went into effect when they were registered on April 5, MSBs affected by the changes will need to comply with the April changes once they are published in the Gazette on April 27. This means that ESMs have a short introduction period. to assess their compliance programs and prepare for additional registration, reporting, record keeping and identification requirements.
Reduce credit card transaction fees
The budget is committed to reducing the cost of credit card fees in a way that benefits small businesses and protects consumers’ existing rewards points. Consultations will continue with stakeholders on solutions to reduce the cost of processing credit card transactions for merchants, although it is unclear what action would be taken on rewards programs, which have so far now regulated provincially, not federally.
Legislative measures relating to the financial sector
The budget proposes to modify the Banking Act, Insurance Companies Act, Trust and Loan Companies Act, and Canada Deposit Insurance Corporation Act. Targeted amendments to these statutes will allow:
- facilitate access to capital for P&C insurance companies;
- streamline approval requirements for financial sector transactions;
- adjusting the time-limited authorizations of investment regimes (which may mean tightening the investment approval regime);
- update the proxy solicitation provisions for certain financial institutions; and
- strengthen the governance of the Canada Deposit Insurance Corporation.
Other than the April changes, which as noted passed ahead of the budget, it remains to be seen which of the above government priorities will result in legislative changes. We will continue to monitor any further legislative and regulatory developments in this regard.