News

July 08, 2015 - REGULATORY IMPACT ANALYSIS STATEMENT

Vol. 149, No. 27 — July 4, 2015

Regulations Amending Certain Regulations Made under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2015

Statutory authority

Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Sponsoring department

Department of Finance

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Canada’s anti-money laundering and anti-terrorist financing regime has been subject to a range of domestic and international reviews and evaluations in recent years. The Department of Finance has also undertaken consultations with private and public stakeholders. Through these activities, a number of statutory and regulatory amendments were identified to strengthen Canada’s anti-money laundering and anti-terrorist financing regime and to improve Canada’s compliance with international standards.

Consequently, the Government introduced legislative amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) through the Economic Action Plan 2014 Act, No. 1. The proposed Regulations introduce a number of regulatory amendments that are needed to enact some of these legislative amendments as well as other standalone regulatory measures.

As a founding member of the Financial Action Task Force, Canada made a political commitment to implement its Recommendations that set international standards to combat money laundering and terrorist financing. Canada’s anti-money laundering and anti-terrorist financing regime will be subject to a mutual evaluation by the Financial Action Task Force in 2015–2016. Some of the proposed amendments would improve compliance with these international standards.

Background

Canada’s anti-money laundering and anti-terrorist financing regime is a horizontal initiative composed of 11 federal departments and agencies (both funded and non-funded). It was formally established in 2000 as part of the Government’s ongoing effort to combat money laundering in Canada, and in 2001 was expanded to include measures to fight terrorist financing.

The core elements of the regime are set out in the Act. The Act applies to designated financial and non-financial entities (known as “reporting entities”) that provide access to the financial system and may therefore be susceptible to abuse by criminals seeking to integrate the proceeds of their crimes into the legitimate economy.

The Act sets out obligations that fall into the following four broad categories: record keeping; verification of identity of designated persons; reporting suspicious and other prescribed financial transactions; and the establishment and implementation of an internal compliance regime.

The Act also establishes the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada’s financial intelligence unit and the regulator responsible for administering and enforcing the Act. FINTRAC’s responsibilities include the overall supervision of reporting entities to determine compliance with the Act. Reporting entities are required under the Act to comply with FINTRAC information demands and to give all reasonable assistance when FINTRAC carries out its compliance responsibilities.

Alongside FINTRAC is the Office of the Superintendent of Financial Institutions (OSFI), which derives its powers from, and is responsible for, administering federal financial institution statutes. OSFI oversees federally regulated financial institutions to ensure that they are compliant with governing laws and supervisory requirements and in sound financial condition. One of the key elements of a sound financial institution is an effective and comprehensive set of anti-money laundering and anti-terrorist financing controls. OSFI complements the work of FINTRAC by monitoring compliance with its prudential expectations, requiring information from financial institutions and conducting audits and annual exams. In addition, OSFI exercises remedial powers in regard to financial institutions’ safety and soundness.

Canada’s regime is consistent with international standards set by the Financial Action Task Force. The Financial Action Task Force is the key intergovernmental body whose purpose is the development and promotion of policies, both at the national and international levels, to combat money laundering and terrorist financing. The Financial Action Task Force updated its Recommendations in February 2012, enhancing international standards in various areas, such as with respect to dealing with politically exposed persons. (see footnote 1)

Although the Recommendations are not legally binding, as a member of the Financial Action Task Force, Canada committed to implement them and to submit to a peer evaluation of their effective implementation. Not meeting the commitment could lead to number of sanctions, including enhanced scrutiny measures to public listing and, in the extreme, suspension of membership from the Financial Action Task Force. Further, non-compliance could cause serious reputational harm to Canada’s financial sector and subject Canadian financial institutions to increased regulatory burden when dealing with foreign counterparties or when doing business overseas.

Canada’s last mutual evaluation by the Financial Action Task Force was in 2007–2008. The next mutual evaluation will take place over 2015–2016, this time in reference to the Financial Action Task Force’s revised Recommendations.

Objectives

The proposed regulatory amendments would

  • update and strengthen the legislation to combat money laundering and terrorist financing activities;
  • strengthen due diligence requirements regarding customers;
  • close gaps in Canada’s regime;
  • improve compliance, monitoring and enforcement efforts;
  • strengthen information sharing in the regime; and
  • address technical issues.

View the entire statement at Canada Gazette: http://gazette.gc.ca/rp-pr/p1/2015/2015-07-04/html/reg2-eng.php