Enhancing AML Compliance for Financing and Leasing Entities in Canada: Navigating FINTRAC’s Requirements

In today’s rapidly evolving regulatory landscape, Financing and Leasing Entities face increasing pressure to maintain robust anti-money laundering (AML) and counter-terrorist financing (CTF) frameworks. As per the latest directive from FINTRAC, effective April 1, 2025, businesses engaged in financing or leasing activities must adhere to strict guidelines under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations. In this comprehensive overview, we’ll discuss who must comply, what the specific requirements are, the key areas of FINTRAC assessments, and the consequences of non-compliance. Check out our previous post on the requirements for financing and leasing companies here.

Who Must Comply?

Financing or leasing entities, as defined by FINTRAC, include any person or entity engaged in the business of financing or leasing property for business purposes—excluding real property or immovables—especially when the property involved is valued at $100,000 or more, and the leasing or financing of passenger vehicles in Canada. This definition is critical because it means that if your organization is involved in any such financing or leasing activity, you are required to establish and maintain a comprehensive AML compliance program.

For instance, if you provide leasing solutions for business equipment or offer financing for high-value assets like commercial vehicles, you must meet your PCMLTFA obligations. Compliance in this sector not only mitigates risks associated with money laundering and terrorist financing but also supports the integrity of Canada’s financial system.

Key Requirements Under FINTRAC

FINTRAC’s requirements for financing or leasing entities are multifaceted, focusing on several core areas to combat money laundering and terrorist financing. These requirements include:

1. Implementation of a Compliance Program
   Every financing or leasing entity must establish a formal compliance program that is tailored to its business operations. This program should include written policies and procedures designed to meet the regulatory standards set forth in the PCMLTFA. The compliance program is the cornerstone of your AML efforts, serving as the foundation for all subsequent activities.

2. Know Your Client (KYC)
   A critical component of the AML framework is the Know Your Client (KYC) process. Financing and leasing entities must verify the identity of clients before entering into a business relationship. This involves collecting and retaining government-issued identification and other relevant documentation to confirm the client’s identity and assess the associated risks. This process helps prevent the use of financial services for illicit activities and ensures that you are fully aware of your client’s background and business activities.

3. Transaction Reporting
   Reporting transactions, particularly those deemed suspicious, is a key obligation under FINTRAC regulations. Entities must file Suspicious Transaction Reports (STRs) and other related reports promptly. This ensures that any unusual financial activity is brought to the attention of regulatory authorities, allowing for timely investigation and intervention.

4. Record Keeping
   Maintaining detailed and accurate records is vital for demonstrating compliance with regulatory requirements. Financing and leasing entities are required to keep records of all transactions, client identification documents, and related due diligence efforts for a prescribed period. This documentation not only supports internal monitoring and audit activities but also enables regulators to assess the effectiveness of your compliance program during FINTRAC examinations.

FINTRAC Assessment Expectations

FINTRAC is committed to ensuring that regulated entities comply with the PCMLTFA and associated Regulations. To achieve this, FINTRAC conducts regular compliance examinations, which focus on several critical areas:

• Compliance Program Implementation: Examiners assess whether the entity has a robust, up-to-date compliance program in place. They review the written policies and procedures to ensure they align with the regulatory requirements.

• Transaction Reporting: FINTRAC evaluates the processes in place for identifying and reporting suspicious transactions. This includes reviewing the timeliness and accuracy of STR filings and other required reports.

• Client Identification and Due Diligence: FINTRAC examines the KYC processes to determine whether client identities are being verified adequately and whether the associated records are maintained in accordance with the regulations.

• Record Keeping: The retention and organization of transaction records and client documentation are scrutinized to ensure that the entity can provide complete and accurate information if requested by regulators.

• Third-Party Determination: FINTRAC assesses whether the entity has established proper controls to monitor and document transactions involving third parties.

These areas of assessment are crucial for maintaining the integrity of Canada’s AML regime. Non-compliance in any of these areas can lead to significant administrative monetary penalties (AMPs), which, as seen in previous years, have totaled millions of dollars.

Penalties for Non-Compliance

The consequences of failing to meet FINTRAC’s AML requirements are severe. Administrative monetary penalties (AMPs) can be imposed on entities that do not maintain proper compliance frameworks. Common violations include:

• Failure to Implement Adequate Compliance Policies: Not having a robust, written compliance program that meets regulatory standards.

• Inadequate KYC Procedures: Failing to properly verify client identities or maintain necessary records.

• Deficiencies in Transaction Reporting: Not filing STRs when suspicious activities are identified.

• Poor Record-Keeping Practices: Inability to provide complete records of transactions or client information as required.

For example, in recent FINTRAC enforcement actions, several regulated entities in the real estate and financial sectors have faced penalties ranging from tens of thousands to millions of dollars. These cases underscore the critical importance of adhering to regulatory requirements, reflecting FINTRAC’s commitment to ensuring compliance and protecting the integrity of the financial system.

How We Can Help

At Platino Consulting, we specialize in AML consulting and compliance services that are tailored to the needs of financing or leasing entities. Our team of experts has extensive experience in developing and implementing compliance programs that not only meet FINTRAC requirements but also position your organization for long-term success. Here’s how we can help mitigate your risk:

• Custom Compliance Program Development: We design and implement comprehensive AML compliance frameworks tailored specifically to your business model. This includes developing detailed policies and procedures that address all aspects of the PCMLTFA, from KYC to transaction reporting and record keeping.

• Enhanced KYC and Due Diligence: We assist you in establishing robust KYC processes that ensure every client is thoroughly verified. Our approach includes training your staff on best practices and utilizing advanced technology solutions to streamline the verification process.

• Transaction Monitoring and Reporting: Our services include the setup of sophisticated transaction monitoring systems that detect suspicious activities in real time. We help you develop efficient workflows for reporting STRs and other required reports, reducing the risk of non-compliance.

• Record Keeping Solutions: We work with your organization to establish robust record-keeping practices that ensure all required documentation is accurately maintained and readily available for regulatory examinations.

• Regulatory Liaison and Training: Our team serves as a bridge between your organization and regulatory bodies. We provide ongoing training and support to keep your compliance programs current, and we offer expert guidance on how to navigate any changes in the regulatory landscape, including future amendments to the PCMLTFA.

Best Practices for Ensuring Compliance

To effectively manage AML compliance requirements, financing or leasing entities should consider the following best practices:

1. Develop a Dynamic Compliance Program: Your compliance program should not be static; it must evolve as your business grows and as regulations change. Regular reviews and updates are essential to maintain compliance.

2. Invest in Technology: Leverage advanced compliance tools for KYC, transaction monitoring, and record keeping. Automation can reduce human error and ensure that your processes are both efficient and effective.

3. Conduct Regular Training: Ensure that your employees are well-versed in AML regulations and best practices. Regular training sessions help maintain a high level of awareness and preparedness across your organization.

4. Engage in Internal Audits: Regular internal audits can help identify gaps in your compliance program before they become issues. This proactive approach enables timely remediation and minimizes the risk of regulatory penalties.

5. Establish Clear Reporting Lines: Ensure that there are defined channels for reporting suspicious activities, both internally and to regulatory authorities. Clear communication protocols are critical in managing compliance risks.

Compliance with FINTRAC’s AML requirements is not just a regulatory obligation—it’s a strategic imperative that protects your organization from financial and reputational risks. By partnering with Platino Consulting, you can ensure that your compliance program is robust, current, and tailored to your specific business needs. Our team of seasoned AML experts is ready to help you navigate the complexities of the PCMLTFA and implement best practices that safeguard your operations.

Contact us today for a comprehensive consultation on how we can help your organization mitigate AML risks and ensure full compliance with FINTRAC’s requirements. Together, we can build a stronger, more resilient compliance framework that supports your business growth and protects the integrity of Canada’s financial system.