In Part 1 we discussed Canada’s securities regulatory approach to Crypto Asset Trading Platforms (“CTPs”) and set out key considerations for CTPs seeking to enter the Canadian market. While the securities regulatory framework is still developing, Canada’s regulatory framework addressing money laundering and terrorist-financing risks related to crypto assets is relatively refined.  In this article we provide an overview of such regulatory considerations, to be read in conjunction with the securities regulatory considerations outlined in Part 1.

The Anti-Money Laundering and Terrorist Financing Regulation Roadmap for Crypto Asset Trading Platforms

Step 1: Determine Whether PCMLTFA Requirements Apply

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”) requires a “dealer in virtual currency” to register as a money services business (an “MSB”). The Financial Transactions and Reports Analysis Centre (“FINTRAC”) considers both virtual currency exchange and virtual currency transfer services to fall within the definition of “dealing in virtual currency.” CTPs that would not otherwise be regulated as a reporting entity under the PCMLTFA (e.g. securities dealers, financial entities) would likely be considered money services businesses for the purposes of the PCMLTA and associated Regulations.

Step 2: Determine Your Obligations Under the PCMLTFA

While regulatory requirements may vary depending on the particular activity, there are certain requirements that will apply to all MSBs. Note that not all virtual currency-related obligations are currently in force; we anticipate the outstanding amendments will come into force in June 2021:

Registration

MSBs must register with FINTRAC. This requirement applies even if the MSB is registered with a province or territory.

Compliance Program

MSBs must establish and be capable of implementing a comprehensive compliance program that addresses all obligations under the PCMLTFA and associated Regulations. The MSB must appoint a compliance offer responsible for implementation and oversight of the program, including updating the program to ensure policies and procedures are up to date. Preparing for a FINTRAC examination requires demonstrating appropriate documentation, but also requires that employees, agents, and anyone authorized to act on the MSBs behalf are well trained and can effectively implement the compliance program.

Know-Your-Client: Verifying, Reporting and Record Keeping

MSBs must be able to verify the identity of clients for certain prescribed activities and transactions under the PCMLTFA. Certain transactions must be reported and submitted to FINTRAC; including: suspicious transactions, large cash (or virtual currency) transactions, electronic funds transfers, and transactions indicating that property in your possession may be controlled by a terrorist group. Records of these reports must be kept, along with additional records for transactions and items listed here. Additionally, recent amendments to the PCMLTF Regulations have added obligations on all reporting entities that transact in virtual currencies.

Step 3: Establish the Requisite Programs, Reporting, and Record Keeping Processes to Ensure Compliance

The FINTRAC website sets out valuable guidance for businesses seeking to establish the requisite processes to ensure compliance; however, each step in the compliance process is derived from provisions of the PCMLTFA that depend on the particular activities of your business. Accordingly, whether the programs you create are sufficient to satisfy your anti-money laundering and terrorist financing obligations will be determined on a case-by-case basis, considering the degree of risk involved.

For more information on establishing and/or reviewing a compliance regime tailored to the obligations of your business, please reach out to Tracy Molino.

A special thank you to Noah Walters, articling student, for his assistance in the preparation of this article.