Why FINTRAC requirements could be 'just the start' of increased oversight
Mortgage brokerages across Canada are adjusting to new anti-money laundering (AML) and anti-terrorist financing compliance requirements that bring the threat of stiff financial penalties for violation – and further changes to how the space is regulated could be afoot in the coming years, according to a leading broker-owner.
Frances Hinojosa (pictured top), of Tribe Financial, said brokerages should be at the ready for further directives by FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada) as industry oversight intensifies. “I think that this is only the start of it,” she told Canadian Mortgage Professional.
“I think you’re going to likely see more changes coming over the next couple of years. Things will morph and change as the process develops. I think FINTRAC will also update what the requirements are – I don’t think this is the last of it. Things will evolve over time.”
The new rules, which came into effect last Friday (October 11), place brokers and lenders under the purview of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
Requirements under those acts include implementing a compliance program, having rigorous Know Your Client (KYC) processes in place, reporting transactions, keeping comprehensive records, and applying ministerial directives.
The changes are a bid to bring mortgage brokering regulation more closely in line with oversight of other financial institutions including banks, and additional efforts in the coming months and years could serve to further align the spaces.
Still, Hinojosa pointed out that brokerages should already have had comprehensive compliance policies and procedures in place even before the new changes took effect. “The broker of record is always on the hook for compliance,” she said.
“What’s interesting about this is maybe it’s shining a light to those individuals that maybe it’s not in their wheelhouse to be running a firm. Even without the FINTRAC requirements, you should have [had] a proper compliance program in place.”
✅ Are you a mortgage administrator, broker or lender?
— FINTRAC_Canada (@FINTRAC_Canada) October 8, 2024
✅ Are you aware if the Proceeds of Crime (ML) and Terrorist Financing Act applies to you?
Try FINTRAC’s self-assessment tool now to check if you will have obligations as of October 11: https://t.co/wcRxsYjXp7 pic.twitter.com/hUK9JNh4IT
Little indication of a wave of consolidation in the brokering space
The prospect of brokerages facing difficulties from the new oversight and potential further changes down the line has raised questions over whether more broker-owners might begin to consider merging with a larger network.
That won’t necessarily prove the case, according to Hinojosa. “As a broker-owner, do you have to consolidate yourself with these bigger networks and organizations? I don’t feel that you do,” she said. “You just have to take a little bit of time to create your policies and procedures around that technology.
“Ensure that your agents are following the proper protocols and that you’re absolutely fine implementing those. Staying on top of that will allow you to run a successful firm that’s compliant under all the requirements.”
She described the new regulations as a potential “wakeup moment” for broker-owners to realize how they should be running their operations and meeting the expectations of regulators.
Neither should it be assumed, Hinojosa added, that simply taking compliance policies recommended by an association will prove sufficient. “You should be running your business like a business – meaning that you have proper policies and procedures in place,” she said.
“And that’s not as simple as cutting and pasting policies and procedures from various associations and not actually going through it to make sure that the principles and guidelines apply to your own operations. It should always apply to your own operations.”
Why were the changes introduced?
The new changes came into effect as part of a wider regulatory clampdown on money laundering and terrorist financing, which have emerged as significant hazards facing the real estate and financial services industries in recent years.
A high-profile investigation into money laundering in British Columbia, the Cullen Commission, took place between 2020 and 2022. It concluded that tens of billions of dollars in laundered cash had flowed through BC real estate and casinos, partly as a result of failings on the part of government and regulators.
That report’s commissioner, Andrew Cullen, said criminals had used BC as “a clearing house to launder a vast amount of money” in a practice that was “fundamentally destabilizing to the economy we want for our province.”
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