Canada has introduced AML regulations in response to concerns about money laundering and terrorist financing.
Aware of growing public concern about money laundering and terrorist financing, the government of Canada introduced its final anti-money laundering (AML) regulations today, July 10, 2019. These rules will impact Canadian crypto businesses, including exchanges, digital platforms, custodial wallets, ICOs, utility and gaming tokens, escrow services and bitcoin ATMs.
The new regulations are more about fighting crime than regulating crypto businesses. With a few exceptions, the new regulations, “Regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019,” will come into force on June 1, 2020.
In British Columbia, the provincial government was concerned enough to introduce a full public inquiry into money laundering after a recent report estimated that $5.6 billion (CA$7.4 billion) was laundered through British Columbia in 2018. (Note: Only a fraction of those laundered funds were associated with cryptocurrency transactions.)
Crypto Regulations Start to Converge
It may be that, partly through the influence of the international Financial Action Task Force (FATF), regulators in different countries are starting to propose similar regulations for crypto businesses.
The FATF is an intergovernmental policy-making body established in 1989 by the ministers of its member countries to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other perceived threats to the international financial system.
Amber D. Scott, founder and CEO of Outlier Canada, a firm that works with crypto businesses to help them comply with government rules, told Bitcoin Magazine:
“The Canadian AML legislation seems to be relatively well-aligned with the Financial Action Task Force's (FATF) guidance for countries. There will be many nuanced differences between countries, but in broad strokes, they will be aligned in terms of their anti-money laundering (AML) efforts.”
She added, “I don't think that these new AML rules will be an insurmountable barrier, though they do add cost and complexity to operating a virtual currency business.”
Chetan Phull, principal lawyer of Smartblock Law, told us that the FATF is definitely influencing Canadian policy makers. He said,
“On June 21, 2019, the Financial Action Task Force clarified the obligations it expects members to implement, in respect of virtual assets and related service providers. It also stated that it ‘will monitor implementation of the new requirements by countries and service providers … in June 2020.’”
He pointed out that immediately after the FATF announcement, the Canadian government followed suit, declaring that its virtual currency dealer provisions would be brought into force on June 1, 2020.
“As of that date, the phrase ‘dealing in virtual currencies’ will have legal effect in Canada, at the federal level,” said Phull.
Not surprisingly, a recently released joint statement from the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority on broker-dealer custody of digital asset securities is similar to the corresponding FATF guidelines.
Going Forward From Here
Magdalena Gronowska is the founder and coordinator of the Canadian Digital Asset Coalition (CDAC), a crypto business coalition formed to work with the government on ongoing regulatory reform.
The CDAC held a cross-Canada roundtable to gather feedback from exchanges, OTC dealers, companies and individuals. It provided an online feedback form and conducted individual discussions in order to generate industry-wide input to the government.
Gronowska told Bitcoin Magazine:
“There are many regulatory changes in the pipeline for Canadian digital asset companies — from AML/KYC, to the new FATF rules, to upcoming crypto-asset platform regulations. To ensure we can compete globally, these need to be coordinated across our government to streamline compliance requirements and minimize regulatory burden. We also need better industry-government collaboration to build a policy framework that balances innovation and growth with protecting consumers and market integrity.”
Regulatory To-Do List
If you operate a crypto business in Canada or have Canadian clients, here are some of the things you will need to do if you’re hoping to comply with the new regulations which come into force in June 2020:
- Register with FINTRAC
- Hire a compliance officer
- Provide ongoing training
- Prepare an AML Compliance Effectiveness Review
- Prepare a risk assessment
- Identify and know your customers
- Keep records up-to-date
- Report to FINTRAC