On February 18, 2023, the Department of Finance released proposed amendments (the Amendments) to certain regulations to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PCMLTFA) that would extend the application of the PCMLTFA to non-financial institution mortgage lending entities1.
The Amendments broaden the scope of application of the PCMLTFA to non-financial institution entities involved in the mortgage lending process; specifically, mortgage brokers, mortgage lenders and mortgage administrators. The Amendments have been anticipated since the federal government announced its intention to extend the application of the PCMLTFA to non-financial institution mortgage lenders in the 2022 Federal Budget (Budget 2022). Amendments were further expected as a result of the June 2022 Cullen Commission report, which identified the mortgage lending industry as a key area of money laundering risk and recommended amendments to the PCMLTFA to regulate private mortgage lenders.
Although mortgages issued by financial entities designated as reporting entities under the PCMLTFA have historically been subject to AML/ATF requirements, non-financial institution mortgage lending entities have remained unregulated. The Amendments aim to address the risk of money laundering in this industry by bringing the requirements applicable to mortgage lending entities in line with existing AML/ATF requirements applicable to financial entities and real estate brokers/sales representatives and developers.
Pursuant to the Amendments:
Given the broad scope of these definitions, the Amendments would apply broadly to non-financial institution mortgage lending entities of all sizes.
As a reporting entity under the PCMLTFA, mortgage lending entities will, once the Amendments are in force, become subject to several requirements, including:
Corresponding administrative monetary penalties (AMPs) will also be added to the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations, subjecting mortgage lending entities to penalties for non-compliance with the PCMLTFA. The range of penalties proposed in the Amendments are in line with existing AMPs under the PCMLTFA (for a minor violation, $1 to $1,000 per violation; for a serious violation, $1 to $100,000 per violation; and for a very serious violation, $1 to $100,000 per violation for an individual and from $1 to $500,000 per violation for an entity).
Once the finalized regulations come into force, we expect that FINTRAC will update its guidance documents to include specific guidance for mortgage lending entities.
In the Regulatory Impact Analysis Statement (RIAS) respecting the Amendments, the following policy objectives were provided for extending the scope of the PCMLTFA to mortgage lending entities:
The Amendments may increase administrative burden on non-financial institution mortgage lenders, particularly those smaller in size. However, stakeholder feedback discussed in the RIAS suggests that many non-financial institution mortgage lenders already voluntarily comply to some degree with AML/ATF measures. One reason for this is because a reporting entity under the PCMLTFA (such as a bank or a securities dealer) wishing to acquire a mortgage or otherwise fund mortgage lenders may require the mortgage lender to comply with the PCMLTFA, perhaps to the same extent as the reporting entity, in order for the reporting entity to minimize its own risk of being involved in money laundering. A practical implication of the Amendments may be to ease the ability of mortgage lenders to attract funding from reporting entities (such as financial entities), who will be given some assurance that the non-financial institution mortgage lender is complying with FINTRAC’s requirements as a reporting entity.