FINTRAC Policy Interpretations

Compliance Program

Compliance officer – internal or external appointment

Question:

Is it acceptable for a reporting entity to outsource the role of Compliance Officer if all aspects of the Compliance Officer element are met within the agreement?

Answer:

Pursuant to subparagraph 156(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), for the purpose of subsection 9.6(1) of the Act, a reporting entity shall, as applicable, implement the compliance program referred to in that subsection by appointing a person — who, where the compliance program is being implemented by a person, may be that person — who is to be responsible for the implementation of the program.

In order to implement an effective compliance program the appointed compliance officer needs to:

  • have the necessary authority and access to resources in order to implement an effective compliance program and make any desired changes;
  • have knowledge of the business' functions and structure;
  • have knowledge of the applicable sector's money laundering and terrorist activity financing (ML/TF) risks and vulnerabilities as well as ML/TF trends and typologies; and 
  • understand the applicable sector's legal requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations.

While the compliance officer is appointed, it is the reporting entity's responsibility to meet its compliance program requirements under the PCMLTFA and its associated Regulations. As a best practice, the compliance officer should have the ability to report compliance related issues to, and meet with the board of directors, senior management or owner/chief operator on a regular basis.

Neither the Act nor its associated Regulations prescribe who must be appointed as the compliance officer nor the manner in which they are appointed. As such, so long as the reporting entity appoints a person responsible for the implementation of the program and that person has the necessary authority and access in order to implement the program effectively, then the reporting entity may appoint a person outside of their business. As a reminder, it the reporting entity that remains legally responsible for meeting its obligations under the Act and its associated Regulations.

Date answered: 2020-09-28

Answer updated on: 2021-08-20

PI Number: PI-10887

Activity Sector(s): Accountants, British Columbia notaries, Casinos, Dealers in precious metals and stones, Financial entities, Life insurance, Money services businesses, Real estate, Securities dealers

Obligation(s): Compliance Program

Guidance: Compliance program requirements

Regulations: 156(1)(a)

Act: 9.6(1)

Impact of legalized cannabis on branches and subsidiaries

Question:

Can branches/subsidiaries in other countries support the cannabis-related activities of our Canadian clients since it is legal here?

Answer:

All financial entities, securities dealers and life insurance companies must ensure that foreign branches and subsidiaries apply policies similar to the record keeping, verifying identity, and compliance program requirements under the PCMLTFA, to the extent permitted by the laws of the foreign country, and this includes the requirement to assess the risk of money laundering or terrorist activity financing offences, and apply risk mitigation measures when the risk is considered to be high.

With that being said, branches and subsidiaries of Canadian reporting entities operating in other countries are subject to the laws and regulations of those countries, as well as the policies and procedures developed in those jurisdictions. The legalization of cannabis in Canada does not mean that other countries will allow the branches and subsidiaries of Canadian reporting entities operating within these countries to offer business services related to cannabis outside of Canada.

For more information on foreign branches, subsidiaries and affiliates requirements please see FINTRAC’s Foreign branches, subsidiaries and affiliates requirements Guidance.

Date answered: 2018-10-17

Answer updated on: 2021-08-20

PI Number: PI-8758

Activity Sector(s): Financial entities, Life insurance, Securities dealers

Obligation(s): Compliance Program

Guidance: Foreign branches, foreign subsidiaries and affiliates requirements

Regulations: 156(1)(c)

Act: 9.6, 9.7

Risk assessment of a legal cannabis business

Question:

I would like clarification from FINTRAC on questions related to legalized cannabis:

  1. Do we have an obligation to assess the risk of our individual clients in relation to the legalization of cannabis?
  2. If yes, what should we consider when assessing the risk of a cannabis business?
  3. Can we refuse to offer services to a legal cannabis business?
  4. What do we do if an entity in another country refuses a transaction because the entity initiating the transaction is a legal cannabis business?

 

Answer:

Pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations, a reporting entity must, as with all clients, evaluate the risk of a money laundering or terrorist activity financing offence as it relates to their business.

While cannabis is now legal in Canada, there is still the potential for illicit activity to occur, as is the case for many products and services. Therefore, reporting entities should familiarize themselves with what is and is not legal when it comes to cannabis so that they may effectively detect patterns of suspicious transactions and activities, and risk assess all clients appropriately.

In assessing risk, a reporting entity should consider factors such as whether:

  • the business is properly licensed - federally, or in the province or territory in which it is located;
     
  • the business abides by the applicable municipal requirements;
     
  • the transactional activity (e.g. use of debit, credit, cash, etc.) is consistent with what is expected from other retailers or similar types of businesses; and
     
  • the types and amounts of the transactions conducted are consistent with what is known about the business (normal and expected activity for that business) and the industry itself.

It is up to each reporting entity to determine what is considered acceptable for its business operations.

Finally, while cannabis is legal in Canada, this may not be the case for other countries and FINTRAC can only emphasize the importance of meeting the obligations as outlined in a country’s laws and regulations when operating in, or transacting with, that country.

Date answered: 2018-10-17

Answer updated on: 2021-08-20

PI Number: PI-8756

Activity Sector(s): Accountants, British Columbia notaries, Casinos, Dealers in precious metals and stones, Financial entities, Life insurance, Money services businesses, Real estate, Securities dealers

Obligation(s): Compliance Program

Guidance: Compliance program requirements, Risk assessment guidance

Regulations: 156(1)(c)

Act: 9.6(2)

Training program for the board of directors

Question:

I am seeking clarification concerning the compliance training program requirements. More specifically, I am asking whether a financial entity’s board of directors is required to receive training?

Answer:

Pursuant to subsection 9.6(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), every reporting entity is required to establish and implement, in accordance with the regulations, a program intended to ensure their compliance with Part 1 and Part 1.1. of the PCMLTFA. For this purpose, paragraph 156(1)(d) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), specifies that if the reporting entity has employees, agents or mandataries or other persons authorized to act on their behalf, they are required to develop and maintain a written ongoing compliance training program for those employees, agents or mandataries or other persons.

A training program is required to ensure that all those who have contact with clients, who see client transaction activity, who handle cash or funds in any way or who are responsible for implementing or overseeing the compliance program understand the reporting, client identification and record keeping requirements. This includes those at the "front line" as well as senior management.

Therefore, to answer your question, while it is encouraged to do so, a Board of Directors is not required to complete a financial entity’s training program if it does not carry out any of the financial entity’s activities and does not operate in the capacity of a senior officer for the purpose of subsection 156(4) of the PCMLTFR.

Date answered: 2016-10-25

Answer updated on: 2021-08-20

PI Number: PI-7651

Activity Sector(s): Financial entities

Obligation(s): Compliance Program

Guidance: Compliance program requirements

Regulations: 156(1)(d), 156(4)

Act: 9.6(1)

9.7(3) - Subsidiary of the subsidiary

Question:

Our question is regarding subsection 9.7(3) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

FINTRAC has previously indicated that subsection 9.7(1) does not apply to subsidiaries of subsidiaries. However, would FINTRAC still expect that the parent would be covering the subsidiary of the subsidiary? In other words, would the subsidiary of the subsidiary still be covered by the policies of the parent of its parent?

For example, Parent A has foreign subsidiary B. Foreign subsidiary B has subsidiary C.

Answer:

Subsection 9.7(3) of the PCMLTFA provides exemptions for

  • (a) an entity that is a subsidiary of an entity to which subsection 9.7(1) applies; or
  • (b) an entity that is a subsidiary of a foreign entity that has developed policies that establish requirements for its subsidiaries that are similar to the requirements of sections 6, 6.1 and 9.6, if that subsidiary is applying those policies to the extent it is permitted by, and do not conflict with, the laws of Canada or a province

Based on your example, the exemption applies to foreign subsidiary B, which does not have to develop policies for its subsidiary C. It is also clear that Parent A will have to develop policies to foreign subsidiary C, but only if foreign subsidiary C carries out activities similar to those of entities referred to in paragraphs 5(a) to (g), and that is either wholly-owned by Parent A or has financial statements that are consolidated with Parent A.

Specifically, in respect to paragraph 9.7(3)(b) of the PCMLTFA,

  • Foreign Parent B has a Canadian subsidiary D, and the Canadian subsidiary D has a foreign subsidiary E. In the case where foreign subsidiary E is also owned by foreign Parent B, the exemption applies to Canadian subsidiary D, which does not have to develop policies for its foreign subsidiary E. Foreign Parent B will develop policies to foreign subsidiary E. In the case where foreign subsidiary E is only owned by Canadian subsidiary D, the exemption under 9.7(3)(b) of the PCMLTFA will not apply and Canadian subsidiary D will be required to develop policies for its foreign subsidiary E.
  • Although Canadian subsidiary D is a reporting entity subject to the PCMLTFA and its associated Regulations, its policies developed by foreign Parent B can be acceptable if they are tailored to its Canadian reality. That means that FINTRAC would find Canadian subsidiary D’s policies compliant if they are not in conflict with the PCMLTFA and its associated Regulations, even if they were developed by foreign Parent B.

Date answered: 2015-11-19

Answer updated on: 2021-08-20

PI Number: PI-6373

Activity Sector(s): Financial entities, Life insurance, Securities dealers

Obligation(s): Compliance Program

Guidance: Foreign branches, foreign subsidiaries and affiliates requirements

Act: 9.7(3)

Sole proprietorship is considered to be a person

Question:

Could you specify whether a sole proprietorship is considered an entity for the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations?

Answer:

The PCMLTFA defines the term entity as “a body corporate, a trust, a partnership, a fund or an unincorporated association or organization.” Therefore, a sole proprietorship is not an entity. Instead, because a sole proprietorship is a business that is owned and operated by an individual, it is considered to be a person as defined by section 2 of the PCMLTFA.

Date answered: 2015-09-08

Answer updated on: 2021-08-20

PI Number: PI-6357

Activity Sector(s): Accountants, British Columbia notaries, Casinos, Dealers in precious metals and stones, Financial entities, Life insurance, Money services businesses, Real estate, Securities dealers

Obligation(s): Compliance Program

Act: 2

Compliance Program for DPMS sales agents that receive a commission

Question:

In the DPMS sector there are sales agents or agencies that are not employees of companies but are self employed. They work on commission from the orders they write for supplier companies. They are not responsible for the invoice or collection of payment from the retailers they sell to. They submit orders to and receive a commission from the supplier of the products they sell. Do they need a compliance program?

Answer:

As per subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), a DPMS is defined as “a person or entity that, in the course of their business activities, buys or sells precious metals, precious stones or jewellery. It includes a department or an agent of Her Majesty in right of Canada or an agent or mandatary of Her Majesty in right of a province when the department or the agent or mandatary carries out the activity, referred to in subsection 65(1), of selling precious metals to the public.”

Section 65(1) of the PCMLTFR indicates that once a DPMS engages in the purchase or sale of precious metals, precious stones or jewellery, in an amount of $10,000 or more, it is engaged in an activity for the purposes of paragraph 5(i) of the Act and subject to the PCMLTFA.

Based on the information you provided, it would appear that the sales agents or agencies are not subject to the PCMLTFA and do not require a compliance program, as they are not directly engaged in the buying or selling of precious metals, precious stones or jewellery. Instead, this responsibility would fall upon the DPMS supplier companies who supply the commission to the sales agents or agencies.

Should the sales agents or agencies ever become directly involved in the sales of these products, for example, if they receive payment from the retailer on behalf of the supplier company, or if they provide the product directly to the retailer, then they would be subject to the PCMLTFA and the obligations outlined therein, which include establishing a compliance program.

As a side note, if the DPMS supplier companies rely on the sales agents or agencies to meet their client identification obligations, as per section 106 of the PCMLTFR, then the DPMS supplier companies are also responsible for ensuring that written agreements or arrangements are in place with the sales agents or agencies.

Date answered: 2014-09-30

Answer updated on: 2021-08-20

PI Number: PI-6243

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Compliance Program

Guidance: Compliance program requirements

Regulations: 1(2), 65(1), 106

Training requirement - Sole shareholder corporation

Question:

I would like clarifications on the requirement according to which a reporting entity with employees has to develop a written ongoing compliance training program. The entity in question is a dealer in precious metals and precious stones (DPMS) that has a single employee who is also the sole shareholder of the business. The business does not currently have a compliance program.

Answer:

Subsection 9.6(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) made it a requirement for every person or entity referred to in section 5 to establish and implement, in accordance with the regulations, a program intended to ensure their compliance with Part 1 of the Act. Paragraph 156(1)(d) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations) stipulates that:

156 (1) For the purposes of subsection 9.6(1) of the Act, a person or entity referred to in that subsection shall implement the compliance program referred to in that subsection by

(d) if the person or entity has employees, agents or mandataries or other persons who are authorized to act on their behalf, developing and maintaining a written, ongoing compliance training program for those employees, agents or mandataries or other persons;

In the above scenario, it is a matter of determining whether the sole shareholder is an employee of the business. For example, does he or she receive a salary or another form of compensation, not including dividends paid from shares in the company. If he or she is considered as an employee, then a training program pursuant to paragraph 156(1)(d) of the Regulations must be developed and updated. However, we recommend that the training program be proportionate to the entity, i.e., if there is only one employee, there is no reason for the entity to develop an extensive training program. A simple program would suffice in this case.

Date answered: 2013-12-19

Answer updated on: 2021-08-20

PI Number: PI-5666

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Compliance Program

Guidance: Compliance program requirements

Regulations: 156(1)(d)

Act: 9.6(1)

MLS Listings

Question:

In our business model, the real estate lawyer acts as agent for the seller. Here is a summary:

  • We are a new real estate brokerage (no clients yet)
  • We will only offer $169 flat fee listings for private seller types
  • In the Listing Agreement, the seller agrees that the seller's lawyer will act as agent to negotiate offers, pay commission and hold deposits
  • Our sole responsibility is to maintain the MLS listing (we have no role in the offer process)

Do we have obligations?

Answer:

If you are a real estate broker, you are subject to legislative obligations under the PCMLTFA when you act as an agent for a purchaser or vendor in respect of the purchase or sale of real property or immovables.

However, if your sole responsibility is to maintain the MLS listing, and if the agreement outlines that you (as a mere poster) are not acting as an agent in respect of the purchase or sale of real estate for the seller of the property, then you (as the mere poster) are not subject to the PCMLTFA and its associated Regulations.

Date answered: 2012-07-10

Answer updated on: 2021-08-20

PI Number: PI-5426

Activity Sector(s): Real estate

Obligation(s): Compliance Program

Guidance: Compliance program requirements

Regulations: 53

Act: 5(j)

Agent obligations in regards to training

Question:

Section 156(1)(d) uses the word "agent" and "other persons who are authorized to act on their behalf". Section 106 does also use the word "agent". We would like to know if 156(1)(d) applies to 106?

Answer:

No, subsection 156(1)(d) does not apply to agents referred to in section 106. Section 106 refers to the term "agent", however, the term utilized does not have the same meaning as agent in the context of subsection 156(1)(d) and training.

The term "agent" that is used within section 106 is only for the purpose of identifying on your behalf and represents only a very limited mandate that you give to someone else (and that person or entity does not act on your behalf... they only identify clients for you). The term agent used in 156(1)(d) has a broader mandate as that person or entity acts on your behalf.

Date answered: 2010-01-04

Answer updated on: 2021-08-20

PI Number: PI-4759

Activity Sector(s): Accountants, British Columbia notaries, Casinos, Dealers in precious metals and stones, Financial entities, Life insurance, Money services businesses, Real estate, Securities dealers

Obligation(s): Compliance Program

Guidance: Compliance Program Requirements, Methods to verify the identity of persons and entities

Regulations: 156(1), 106

Date Modified: