AML Webinar Recap: Revised Regulations under the Proceeds of Crime and Terrorist Financing Act

In May 2020, the Department of Finance published amendments to the regulations under Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Most of the amendments to the regulations under the PCMLTFA are scheduled to come into force on June 1, 2021, but some changes took effect on June 1, 2020. There are some key provisions that relate to prepaid in these revised regulations.

On March 17, CPPO board member Jacqueline Shinfield, a Partner at Blake, Cassels & Graydon LLP, provided an informative webinar on what prepaid providers need to know about the revised regulations under the PCMLTFA. Shinfield is well known for her wide-ranging experience with payment issues, money laundering and currency exchange regulations.

These amended regulations supplemented the amendments to the PCMLTFA regulations, introduced in June 2019, and were in response to various recommendations and reports issued by the House of Commons Standing Committee on Finance, the Government of British Columbia, and the Financial Action Task Force. Key changes in the 2020 amendments included:

  • Refinements to the concepts of business relationship and ongoing monitoring
  • Extended application of beneficial ownership and politically exposed person requirements to a broader range of reporting entities
  • Additional record keeping requirements on money services businesses
  • Included in the revised regulation, as it relates to the prepaid community, are added application requirements for financial entities and life insurance companies, including an impact of program management. This includes push down requirements and acting as an AML/KYC agency. As it relates to the regulations, these organizations are treated similar to deposit accounts.

“The amendments have clarified that the requirement to verify the identity of all persons authorized to give instructions on an account does not apply to credit card or prepaid card accounts, which have their own specific requirements,” Shinfield wrote in June 2020.

Requirements where products are captured by the regulations include updates to:

  • Reporting
  • Record keeping
  • PEP determination
  • ID verification
  • Ongoing monitoring

Under the regulations a prepaid payment product is defined as “a product that is issued by a financial entity and that enables a person or entity to engage in a transaction by giving them electronic access to funds or virtual currency paid to a prepaid payment product account held with the financial entity in advance of the transaction.

Excluded from the definition of a prepaid payment product is:

  • A product that allows a person or entity to access a credit and debit account
  • Single use cards issued for retail rebate programs
  • Use of the term “retail rebate program” is narrow (definition is tied to a “partial refund” or “payback”)

The revised prepaid product account is defined as “account — other than an account to which only a public body or, if doing so for the purposes of humanitarian aid, a registered charity as defined in subsection 248(1) of the Income Tax Act, can add funds or virtual currency — that is connected to a prepaid payment product and that permits”:

  • Funds or virtual currency that total $1,000 or more to be added to the account within a 24-hour period
  • Or a balance of funds or virtual currency of $1,000 or more to be maintained

Excluded from the definition of a prepaid payment product account is:

  • Accounts to which only a public body can add funds currency, including government programs (tax refunds, government benefits).
  • Accounts to which registered charities that can add funds for the purposes of humanitarian aid

For products excluded from being a “prepaid payment product”(as per the definition) then the prepaid product account will also be excluded from the scope of the regulations. Prepaid product accounts (but not the prepaid products) may also be excluded if they fall within the general exemptions for large corporates and trusts. Draft guidance issued by FINTRAC provided exclusions to gift cards or stored value cards issued for sole use at a specific store as “closed loop” cards are meant to be excluded.

Reporting requirements were key revisions in the revised regulations. Reporting entities must now file suspicious transaction reports with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) “as soon as practicable after they have taken measures that enable them to establish that there are reasonable grounds to suspect that the transaction or attempted transaction is related to the commission of a money laundering offence or a terrorist activity financing offence”.

Read more about recent regulations here.

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