Canada is tightening its grip on anti-money laundering as the amendments made under its Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) will subject all money services businesses (MSB), including cryptocurrency exchanges, to stricter rules.
The country’s Department on Finance announced in July this year that all cryptocurrency exchanges must register with Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) beginning June 1, 2020 in order to operate in Canada.
Under the supervision of the financial watchdog FinTRAC, crypto exchanges that seek to continue providing Canadian customers with trading and financial services must comply with the new rules effective mid next year.
New Rules for Crypto Exchanges in Canada
The updated PCMLTFA upgraded the status of crypto exchanges by categorizing them as an MSB. This classification entails that crypto exchanges will have to complete all the requirements other reporting entities produce. These tasks include monitoring transactions, keeping client records, and reporting suspicious transfers.
Unlike other reporting entities, however, crypto exchanges are exempted from reporting every single transaction. The new rules specify that exchanges will report only transfers that amount to more than CA$10,000 or its equivalent in cryptocurrency.
To be included in the suspicious transactions report (SRT) to be sent by crypto exchanges to FinTRAC are the identity of the sender responsible for the suspicious transfer, as well as the recorded details and the receipt of funds of the said transaction.
Moreover, under the amended PCMLTFA, reporting entities are mandated to file the SRTs as soon as possible, more specifically as soon as they find a transaction of more than CA$10,000. This is a significant change from the existing rule, which requires MSBs to have three days at most to file the SRT.
These changes alone hint at Canada’s efforts to closely monitor all financial transactions that may qualify for money laundering.
In addition to the updated reporting system and requirements, all crypto exchanges must observe Know Your Customer (KYC) policies. This requires exchanges to identify all clients and effectively record information of their customers.
Hiring a compliance officer, as mentioned earlier, is also a requirement that all crypto exchanges operating in Canada should accomplish. FinTRAC expects MSBs to develop a compliance program, as well, and failure to do so will merit consequences.
In fact, FinTRAC has the authority to penalize all non-compliant MSBs in accordance to the approved administrative monetary penalties. In essence, beginning June 2020, all cryptocurrency exchanges operating or has plans to operate in Canada must comply with the new securities law.
Virtual exchanges that fail or refuse to comply with the said requirements will have to discontinue providing Canadian customers with trading and financial services.
Effects of PCMLTFA Amendments on Crypto Exchanges
The upcoming changes in the PCMLTFA will largely affect all MSBs, especially crypto exchanges. After all, Canada has been known to be lax when it comes to its AML laws.
In the interview with Lori Stein by The Globe and Mail, she said the current set-up in regard to Canada’s AML/KYC policies has been on a voluntary level. This explains why many crypto exchanges conveniently operate in the country.
Stein, partner at Canadian law firm Osler, stressed that the amendments in the PCMLTFA can be seen as a beginning for banks and financial institutions to warm up to the possibility of dealing with cryptocurrency businesses, saying:
“The hope is that now that there is going to be requirement to register and comply, and oversight by FinTRAC, that banks and other financial entities are going to be more open to providing services to and dealing with virtual-currency businesses.”
The stricter rules to be imposed under the updated PCMLTFA, however, do not sit well on crypto exchange operators, as also pointed out by Stein.
As a consequence of the amendments, some crypto exchanges may move out of Canada and settle in countries with lax regulations. Similarly, offshore crypto exchanges may stop providing their Canadian clients with financial services.
The announcement made by the Department of Finance came months after Canadian customers could no longer access up to $190 million stored in Canadian crypto exchange QuadrigaCX, following the death of the exchange’s founder and CEO.