Major changes to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “Act”) will come into effect earlier than expected, on April 1, 2025. If your business operates in the financing and leasing industry, now is the time to prepare. The amendments coming into force will affect key compliance areas for financing, leasing, factoring, and cheque-cashing companies — from client verification to record keeping and penalty risks.
Below is a summary of the most important regulatory updates and how they may impact your operations.
Overview of key amendments to the Act
Voluntary information sharing among reporting entities (coming into force: immediately)
The legislative amendments create a new framework which will allow for information sharing among reporting entities to detect money laundering, terrorist financing and sanctions evasion without jeopardizing privacy protections. This will be voluntary, and reporting entities that choose to engage in information sharing will be required to develop a code of practice explaining how the provision will be applied, which must be approved by the Privacy Commissioner.
New businesses now regulated under the Act (coming into force: April 1, 2025)
The amendments introduce regulatory requirements for 1) factoring companies, 2) cheque-cashing businesses and 3) financing and leasing companies.
1. Factoring companies: New anti-money laundering (“AML”) compliance obligations
Factoring companies supply business-to-business liquidity to a client upfront in exchange for the cash value of a certain amount of the client’s accounts receivable (i.e. invoices) to be collected later by the factor. Factoring companies will now be required to comply with obligations including record keeping, client verification, transaction- reporting and establishing a compliance program. Financial entities providing factoring services will also be caught under the application of such requirements.
2. Cheque-cashing businesses: Treated as money services businesses
Cheque-cashing businesses (“CCBs“) will now be regulated as money-services businesses (“MSBs“) under the Act. The amendments provide that CCBs will be subject to both existing obligations for MSBs along with newly introduced obligations for CCBs. Such obligations include record keeping, client verification, transaction-reporting and establishing a compliance program. Notably, CCBs must conduct client verification in transactions where a client cashes a cheque valued at $3,000 or more (and maintain records associated with such transactions).
3. Financing and leasing companies: Expanded due diligence requirements
Under the amendments, a person or entity is engaged in the business of financing or leasing if it finances or leases:
- property, other than real property or immovables, for business purposes;
- passenger vehicles in Canada; or
- property, other than real property or immovables, that is valued at $100,000 or more.
Financing and leasing companies will be required to comply with obligations including record keeping, client verification, transaction-reporting and establishing a compliance program. Notably, financing and leasing companies will be required to verify the identity of each party it enters into a financing or leasing transaction with (and maintain records associated with such transactions). Record-keeping obligations will also apply to every payment a financing and leasing company receives in connection with a financing or leasing transaction it has entered into.
Financial entities providing the above-mentioned services will also be caught under the application of such requirements. Note that financing and leasing services for low-value consumer products assessed as posing a low risk of money laundering are currently excluded from the application of the amendments. Similarly, invoices paid by public bodies and large public corporations are also currently excluded from the application of the client verification and record keeping requirements.
Expansion of authorities of Canada Border Services Agency (“CBSA”) (coming into force: April 1, 2025)
Enhanced authorities of the CBSA will reinforce its ability to detect, deter, and disrupt trade-based financial crime. Entities trading goods in and out of Canada will be required to report on the importation and exportation of goods to the CBSA. The CBSA will also be empowered to seize and forfeit goods where it has reasonable grounds to suspect that the goods are the proceeds of crime or related to money laundering, terrorist financing or sanctions evasion. The amendments will also create a new administrative monetary penalty scheme to enforce compliance with the new requirements.
Beneficial ownership discrepancy reporting (coming into force: October 1, 2025)
Currently, reporting entities are required to obtain and confirm corporate beneficial ownership in connection with satisfying identity verification requirements. Further to the current requirements, the amendments will require reporting entities to report or resolve any material discrepancies between their records and a company’s registry filings with Corporations Canada within 30 days of the discrepancy being identified. A material discrepancy would not include spelling errors or a minor variation in a name or address, but could include, for example, missing beneficial owners.
Penalties for non-compliance
Corresponding penalties for non-compliance of each obligation will be introduced into the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations. Violations are categorized by degree of importance, from minor, to serious and very serious, and assigned corresponding penalty ranges from a maximum of $1,000 per minor violation, to a maximum of $100,000 per serious violation and a maximum of $500,000 per very serious violation committed by an entity.
Need assistance?
These upcoming changes to Canada’s AML regime bring new and complex obligations for financing and leasing companies. Businesses should act now to assess their risk exposure, update compliance programs, and ensure staff training is in place.
If you have questions or need support preparing for these changes, please contact one of the authors or a member of our Structured Finance and Securitization Group. We’re here to help you stay compliant — and avoid costly penalties.
