FINTRAC Implements New AML Regulations for Mortgage Brokers and Lenders

Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has introduced enhanced anti-money laundering (AML) regulations that provide updated compliance obligations for mortgage brokers and lenders.

These regulations are set to begin on October 11th, 2024.

Role of FINTRAC

• FINTRAC is a financial intelligence unit in Canada, and its role is to supervise and examine financial transactions to prevent “money laundering, terrorist financing, and sanctions evasion.”
• It supervises “banks, credit unions, and life insurance companies” already, but currently, it put more focus on the “mortgage sector” too.
• The main goal of FINTRAC is to “strengthen Canada’s financial system” by making sure that the mortgage industry follows and implies the AML controls to combat financial crimes.
• Mortgage businesses ask to follow AML controls to prevent and report suspicious transactions.

Why the Mortgage Industry is Targeted for Financial Crimes?

FINTARC’s response to Canadian Mortgage Trends (CMT) states, “Canada’s updated assessment of inherent risks of money laundering and terrorist financing assessed unregulated mortgage lenders as being highly vulnerable to money laundering and terrorist financing.”

“It also identifies mortgage fraud as a very high risk as it relates to money laundering,” stated FINTRAC.

Mortgage Sector’s Reaction to Regulatory Changes

The stakeholders understand the importance of FINTARC’s supervision and implementation of AML measures for combating financial crimes such as money laundering and terrorist financing in the mortgage sector.

Meanwhile, they’re worried about the impact of additional regulatory obligations on business.

Mortgage Professionals Canada (MPC)’s President and chief executive officer, “Lauren van den Berg” stated,

They ask FINTRAC to make sure the rules are “effective in tackling money laundering and mortgage fraud without creating too much red tape for brokers and the industry.”

Van den Berg stated to CMT, “While there will be some growing pains in adapting to the new regulations, it’s all about finding that balance.”

“In our engagement with FINTRAC, MPC took a firm stance in challenging compliance requirements that our members viewed as unnecessary administrative burdens on their daily operations,” she further said.

“Ultimately, it’s about protecting consumers, maintaining the integrity of our industry, and safeguarding the broader economy. But we also want to make sure that compliance remains fair and manageable for everyone involved.” She added.

MPC’s Efforts in Compliance Education

Mortgage Professionals in Canada offer two courses for the following purposes.

• One course is available for all professionals.
• Other courses are available for people who put these regulations into practice.

Members from the mortgage industry can access “templates and policies” to implement these guidelines effectively in their businesses.

Impact of Compliance Costs on Mortgages

At the same time, “Managing Partner at Mortgage Connection and outgoing Chair of MPC’s board of directors Joe Jacobs” highlighted issues related to the impact of “cost of compliance” on operations of the mortgage sector.

According to Jacob’s statement to CMT, “The most significant requirements that will impact mortgage transactions are the day-to-day, step-by-step processes that brokerages and practicing mortgage professionals must implement.”

“A more robust ID verification, screening, risk analysis, STR reporting, and ongoing reporting requires adapting new processes, training, leveraging technology, and taking on additional costs to meet the requirements,”

Joe Jacobs

Meantime, “Executive Vice President for Operations at brokerage network Dominion Lending Centres Group (DLCG), Dave Teixeira,” mentioned that “new requirements are nothing new.”

Speaking of the persistent compliance standards for banks and real estate brokers, Teixeira remarked, “Some mortgage agents might think we’re being picked on without realizing that some industries have had this for years.”

He added, “So, this is not new. It just feels overwhelming because it’s happening to us right now.”

Communication with FINTRAC

Teixeria underlined the involvement and communication with FINTRAC to comprehend the regulations effectively. He stated, “Our stance at DLCG is that we will never be against anti-money laundering action]”

He added We’ve always run towards regulation, and we’ve had regular meetings with FINTRAC over the last few months to stay on track.”

He also mentioned the significance of technology for decreasing compliance stress in the industry.

He said, “We realized very early on that compliance would be a greater burden on the agents without a technology solution.”

“This is why we’ve partnered with Newton [Connectivity Systems] to use their Velocity integrated mortgage system,” he added further.

CEO’s Warning on Compliance

According to the warning of “The CEO of Newton Connectivity Systems, Geoff Willis,” taking compliance not seriously leads to severe consequences. Willis said, “These are obligations from a regulator with a lot of teeth.” He added, “They’re serious about this.”

Willis emphasized the necessity of adopting AML rules in the mortgage industry to reduce potential risks by ensuring compliance in the sector.

He stated, “It’s going to be tougher and tougher to run an office where your originators are on different operating platforms.” He added, “If there’s no semblance of order in how your business is done, it will be very hard to have standardized compliance that includes ongoing monitoring.”

Businesses Required to Meet AML Compliance

• FINTRAC’s definition of a mortgage industry covers “lenders, administrators, and brokers.”
• FINTRAC helped the mortgage industry comply by providing them with “an online self-assessment tool” to let experts identify whether they comply with “new requirements” to combat financial crimes.

Read Also:

• Preparing for FINTRAC’s New AML Regulations Effective October 2024
• FinCEN Issues Final Rule Imposing Anti-Money Laundering Reporting Requirements for Residential Real Estate Transfers
• Australia’s AML/CFT Law Tranche 2 Expanding Compliance Requirement

FINTRAC’s New Compliance Requirements

FINTRAC announced the following requirements for the mortgage industry

• Establishment of a compliance program
• Verification of customer’s identity
• Keeping detailed records of financial transactions
• Reporting of specific types of financial transactions to FINTRAC, including “international electronic funds transfers and virtual currency transactions, and suspicious activities that may be linked to money laundering or terrorist financing.”

Key Compliance Obligations for Mortgage Brokerages

Mainly, the compliance obligations are related to brokerages responsible for establishing and supervising a compliance program by appointing “a compliance officer, verifying customer identification, transaction monitoring, reporting suspicious transactions, and record keeping.”

The following are key obligations for mortgage brokerages:

Staff training

• Make sure your company’s staff is well-trained.
• Aware of updated AML/CFT requirements.
• Educate them about the detection of suspicious activities and their reporting to relevant authorities.
• Regular training keeps everyone updated and assists in staying compliant.

Develop a Compliance Program

• Establish a compliance program.
• Appoint a compliance officer to supervise the AML protocol and policies.
• Set clear guidelines for the identification of customers.
• Keep a record for a specific time.
• Evaluate risks regularly, particularly for high-risk customers such as PEPs and risk-related transactions.

Know Your Customer (KYC)

• Before initiating any business deal, verify the identification of customers.
• For verification, collect basic information such as full name, date of birth, residence address, and contact information.
• Verify through government-issued certificates such as ID, driving license, or birth certificate.
• Add extra regulatory steps for verifying higher-risk customers, such as Politically Exposed Persons (PEP), including monitoring their transactions.

Ongoing monitoring of Transactions

• Monitor customers’ transactions that include “a large amount of funds,” particularly those that exceed the “$10,000” threshold.
• Detect and report suspicious activities related to financial crimes, such as money laundering or terrorist financing.
• A transaction that includes virtual currency surpassing this limit must also be reported.

Record Keeping

• Preserve the thorough records of customer identification, financial transactions, and detailed records of reports for at least “five years.”
• This assists in audits to ensure compliance.

Reporting of Suspicious Transactions

• The mortgage industry must deliver “Suspicious Transaction Reports  (STRs)” related to financial crimes such as money laundering and terrorist financing to FINTRAC.
• A “large cash transaction report” is mandatory for any cash transaction involving organizations or public entities of $10,000 or more.

How Mortgage Experts Submit Reports to FINTRAC

• Using the “Web Reporting System” of FINTRAC, required reports are submitted by mortgage experts.
• It is an “online portal” customized according to the requirements of the business to assist firms in filing reports effectively.
• Reports can be filed with FINTRAC using the “API through system-to-system transfer.”
• If the mortgage entity uses a compliant mortgage platform, this API integration is accessible.

Penalties for Non-Compliance

Based on the severity of law breaches, FINTRAC imposes penalties on the industry.

• Penalty for “Minor infractions” is upto “$1,000 fines”
• Serious Violations lead to the following fines
  • Upto $100,000 for individualsas
  • Upto $500,000 for organizations

• Severe violations and non-compliance may lead to “criminal charges, fines of up to $2 million, and possible imprisonment”.
• Penalties are imposed with the intent of encouraging the mortgage sector to ensure compliance.
• Breaching laws repeatedly can negatively impact a business’s reputation and lead to a license ban.