Canada: Economic Action Plan 2014 – Legislative Changes Relevant To Financial Institutions And Money Services Businesses

On June 19, Economic Action Plan 2014 Act, No 1, which implements certain provisions of the 2014 Federal Budget, was passed by the Government of Canada. This legislation is also known as Bill C-31. This Legal update highlights certain changes that will be of interest to financial institutions and money services businesses.

ITA amendments will require reporting of international EFTs of $10,000 or more

There is a new definition of reporting entities in the Income Tax Act (Canada) (ITA), which includes federally and provincially regulated financial institutions, credit unions and money services businesses. Reporting entities will be required to file with the Canada Revenue Agency an information return (the form of which will be prescribed by regulation) in respect of every electronic funds transfer (EFT) of $10,000 or more that is sent outside Canada or received from outside Canada at the request of a client of the reporting entity. This new reporting requirement does not apply in respect of electronic funds transfers within Canada.

Coming into force: These amendments are in force as of June 19, but they apply to EFTs made after 2014 (i.e. beginning January 1, 2015).

The scope of MSB activities that are captured under Canada's AML legislation will include dealing in virtual currencies

The definition of "money services business" under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) (PCMLTFA) will be expanded to include entities that deal in virtual currencies. Virtual currencies will be defined in regulations that have not yet been published. We expect that "virtual currencies" will include Bitcoin. As a result, it appears that Bitcoin exchanges will be regulated as money services business (MSBs).

Coming into force: The date for the coming into force of this amendment has not been announced.

Foreign MSBs that provide services to customers in Canada will be required to register with FinTRAC

Entities that do not have a place of business in Canada, but are engaged in the business of providing one or more of various services directed at Canadians and provide those services to customers in Canada, will be required to register with the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC). The activities that require registration are the same as those that currently require MSBs to register, including foreign exchange dealing, remitting or transmitting funds, and issuing or redeeming money orders or other instruments, with the addition of dealing in virtual currencies, as noted above.

Coming into force: The date for the coming into force of this requirement has not been announced. As drafted, once this provision is proclaimed into force, registration will be required immediately for foreign MSBs. It remains to be seen whether the Government will provide advance notice of the in-force date.

New requirements in respect of domestic PEPs and heads of international organizations

Currently the provisions regarding politically exposed persons (PEPs) under the PCMLTFA only address foreign PEPs. Bill C-31 includes new definitions of "politically exposed domestic person" and "head of an international organization". In addition to the current requirements in respect of foreign PEPs, an entity regulated under the PCMLTFA will be required to determine (in certain circumstances set out in the regulations) whether it is dealing with a domestic PEP or a head of an international organization, or with any prescribed family members or associates of those categories of individuals. The amendments do not automatically require senior management approval for an entity to deal with a domestic PEP (as is required to deal with foreign PEPs), but such approval may be required based on the entity's overall risk assessment of the relationship or transaction, including the fact that the person it is dealing with is a domestic PEP. With the new definition of domestic PEPs in the PCMLTFA, we expect that the regulations under the PCMLTFA will be revised to add requirements in respect of domestic PEPs. It remains to be seen whether the requirements for domestic PEPs will mirror the requirements currently in effect for foreign PEPs. In any event, it is likely that entities regulated under the PCMLTFA will have to change their procedures in respect of PEPs once these changes are in force.

Coming into force: The date for the coming into force of these changes has not been announced.

Prohibition on maintaining accounts for and correspondent banking with unregistered foreign MSBs

Entities regulated under the PCMLTFA (including financial institutions, MSBs and securities dealers) will be prohibited from opening or maintaining accounts for, or having correspondent banking relationships with, unregistered foreign MSBs.

Coming into force: The date for the coming into force of these changes has not been announced.

New regulation-making power in respect of bank activities in relation to derivatives and benchmarks

The Bank Act (Canada) has been amended to provide that the Governor in Council may make regulations regarding a bank's activities in relation to derivatives and benchmarks.

Coming into force: This amendment is currently in force, but regulations in this regard have not yet been published.

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