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Cryptocurrency businesses are becoming a FINTRAC reporting entity

27/04/2020


What every cryptocurrency business needs to know about the amended 2019 Canadian anti-money laundering regulations

With amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) in June 2019 came several changes to Canada’s Anti-Money Laundering (AML) Regulations. Among these changes were the clarifications around the definitions for virtual currency, cryptocurrency businesses or dealers in virtual currency that are subject to the PCMLTFA and its associated Regulations (“the Regulations”).

A cryptocurrency business or dealers in virtual currency would be subject to the Regulations if it offers any of the following virtual currencies services:

  • A digital representation of value that is not a fiat currency (i.e. a legal tender backed by the government), which can be used for payment or investment purposes and readily exchanged for funds or for another virtual currency.
  • Businesses offering such services would include virtual currency exchanges, brokerages, and virtual currency automated teller machines.

  • A private key of a cryptographic system that enables a person or entity to have access to a digital representation of value.
  • Businesses offering such services would include custodians that hold customers’ private keys on their behalf, such as wallet providers.

Exemptions

Cryptocurrency businesses exempted from the Regulations include blockchain developers, cryptocurrency mining companies which provide computational power for transactions or blockchain companies providing technical support to the reporting entities.

MNP’s AML advisors can help determine whether your cryptocurrency business falls under the AML regulations or is exempt from the regulations. 

AML regulatory requirements

Effective June 1, 2020, every cryptocurrency business or dealer in virtual currency operating in Canada or providing services targeted to the Canadian market will be officially regarded as a money services business (MSB). These must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and comply with the PCMLTFA and its associated Regulations going forward.

Specifically, cryptocurrency businesses subject to the Regulations must fulfill the following obligations:

  1. Register as an MSB with FINTRAC — Every cryptocurrency business or dealers in virtual currency subject to the Regulations must register with FINTRAC effective June 1, 2020. The registration is free. Entities can register now on the FINTRAC website.
  2. Develop a compliance program — Every virtual currency business subject to the Regulations must develop a comprehensive and effective AML compliance program. According to FINTRAC, this is the basis for meeting all regulatory requirements under the PCMLTFA and its associated Regulations.
  3. The AML compliance program must include the following five elements:

    1. Appointment of a Compliance Officer: Each virtual currency business must appoint an individual who will be responsible for implementing the compliance program and the first point of contact for FINTRAC. Based on the organization’s size, this individual can be the owner of the business, an employee, or an independent AML compliance professional.
    2. Development of written policies and procedures: Each virtual currency business must develop and maintain an AML policies and procedures manual, which must be approved by a senior member of the organization and kept up to date.
    3. At a minimum, the AML policy manual must include procedures for:

      • Establishing a business relationship with a client
      • Client identification
      • Third-party beneficiary determination
      • Record-keeping
      • Reporting suspicious activities or transactions, and
      • Reporting large virtual currency transactions[1]
    4. Risk Assessment: Each virtual currency business must assess its specific AML risks and document measures that will be taken to mitigate such risks. A risk-based approach would assess AML risks from four perspectives:
      • Products and delivery channels
      • Geography
      • Client and business relationships, and
      • Other relevant factors
    5. Ongoing Training Program: Every regulated virtual currency business must create, document and maintain a training program for its employees and anyone who acts on its behalf, including the company’s agents. This must be reviewed and updated periodically.
    6. Effectiveness Review: At least once every two years, every virtual currency business must conduct an independent AML review of its compliance program and test its effectiveness. This assessment can be performed by either an internal employee or an external AML compliance consultant. 

Cost of non-compliance

Failure to comply with these legislative requirements can result in administrative fines up to $100,000 per violation for individuals and up to $500,000 per violation for companies.

As Canada’s federal AML regulator and financial intelligence unit, FINTRAC has the legislative authority to issue and publish administrative monetary penalties where instances of non-compliance are identified.

How MNP can help

MNP’s dedicated AML professionals have developed and assessed the effectiveness of hundreds of AML compliance programs for MSBs, payment service providers, financial technology businesses and other FINTRAC reporting entities to the satisfaction of the regulators and financial service partners.

We can help you:

  • Identify whether your business is a reporting entity under the AML Regulations
  • Develop your AML compliance regime
  • Conduct an independent review of your AML compliance program
  • Test the effectiveness of your AML compliance program
  • Prepare and respond to regulatory examinations
  • Conduct AML compliance training
  • Act as an outsourced Chief Anti-Money Laundering Officer
  • Conduct transactions monitoring review

For more information, contact any of the following advisors in MNP’s Forensics and Litigation Support Services:

Corey Anne-Bloom, CPA, CA, CA.IFA, CFE, CFF

Eastern Canada Leader, Forensics and Litigation Support

647.775.1772

[email protected]

Lisa Majeau-Gordon, CPA, CA.IFA, CFE, CFI, CFF

National Leader, Forensics 

780.451.4406

[email protected]

Brian Tario, CFI

Partner, Forensics and Litigation Support

807.474.4892

[email protected]

Rob Fowlie, CPA, CA, CFE, IFA

Toronto Practice Leader, Forensics and Litigation Support

416.515.3802

[email protected]

Claudius Otegbade, CFE, CFCS, CFI, CBP

Senior Consultant, Forensics and Litigation Support

647.475.4554

[email protected]

Mondiu Jaiyesimi, BSc., MSc., CAMS, CBP

Consultant, Forensics and Litigation Support

647.475.4500

[email protected]