Mortgage businesses added to AML rules

Summary#

This is a proposed change (Part I notice) to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations. It would bring certain mortgage industry businesses under Canada’s anti-money‑laundering rules and add new due‑diligence requirements for banks’ correspondent relationships. The proposal was published by the Department of Finance on February 18, 2023 and invites comments for 30 days after that date.

What it does#

• Adds definitions and rules that treat mortgage administrators, mortgage brokers and mortgage lenders as businesses covered by the regulations.
• Requires those mortgage businesses to report and keep records when they receive $10,000 or more in a single transaction:
  • in cash (report to the Financial Transactions and Reports Analysis Centre of Canada), and
  • in virtual currency (report and keep specific records).
• Requires mortgage businesses to keep other records about mortgage clients and loans, including receipts, client information, and corporate authority documents.
• Requires mortgage businesses to verify the identity of people, corporations, and other entities involved in transactions covered by the new record rules. In many cases identity must be verified at the time of the transaction or, for some corporation/entity checks, within 30 days.
• Extends rules that require periodic checks for politically exposed persons to include mortgage businesses and others already listed (for example, real estate professionals and some notaries). It also sets a trigger to check for PEP status when receiving $100,000 or more in cash or virtual currency.
• Strengthens what banks must do when they have correspondent banking relationships with foreign financial institutions. New steps include:
  • periodic ongoing monitoring of those relationships,
  • checking public information for penalties or reputation issues,
  • assessing the quality of anti‑money‑laundering supervision in the foreign institution’s jurisdictions,
  • keeping client and transaction information up to date.
• Updates the administrative‑penalty schedule to classify some new violations. The draft adds a new serious violation for failing to conduct the required correspondent‑banking monitoring and several new minor violations tied to the mortgage sector recordkeeping and reporting duties.
• Sets the coming‑into‑force timing to occur in the eighth month after these rules are published in Canada Gazette, Part II, on the same calendar day (or the last day of that eighth month if that day does not exist).

Who's affected#

• Mortgage industry actors are the primary group affected: mortgage administrators, mortgage brokers and mortgage lenders.
• People who pay $10,000 or more in cash or virtual currency to those mortgage businesses in a single transaction will face reporting and identity‑verification steps. Transactions from a financial entity or public body (or someone acting on their behalf) are exempted from some reporting duties.
• Banks and other financial entities that use correspondent banking relationships with foreign institutions will face stronger due‑diligence and monitoring duties.
• Other professionals already in the rules—such as real estate brokers, developers, some notaries, and dealers in precious metals—are mentioned in related PEP and verification provisions and may see aligned expectations.
• Regulators and compliance officers who manage reporting and recordkeeping will be affected by the new administrative‑penalty classifications.

Why it matters#

• The change brings parts of the mortgage sector into Canada’s formal anti‑money‑laundering regime. That means more reporting, recordkeeping and identity checks for mortgage transactions involving large amounts of cash or virtual currency.
• For people buying, lending, or otherwise transacting around real estate, it may mean additional paperwork and checks when large cash or crypto payments are involved.
• For banks, the new correspondent‑banking requirements aim to tighten oversight of foreign partners. That could change how banks assess and maintain those relationships.
• Because this is a Part I (proposed) notice, these are not final rules yet. The government asked for comments within 30 days of the February 18, 2023 publication, and the exact start date depends on the later Part II publication schedule described above.