Title insurers, real estate brokers and sales representatives will have new obligations to guard against money laundering and terrorist financing under proposed federal regulations. The intended measures were first announced in the Canadian government’s 2023 fall economic statement and have now been posted for public review until August 5, 2024.
As proposed, title insurers would be added to the roster of entities mandated to report to Canada’s financial transactions and reports analysis centre (FINTRAC), which entails vigilance and record-keeping around potentially irregular transactions and the parties to them. As well, the current directive that real estate representatives take “reasonable measures” to ascertain the identity of unrepresented and third parties to a transaction would be formalized into required documentation.
The accompanying regulatory analysis notes that both stakeholder title insurers and the Canadian Real Estate Association (CREA) opposed the proposed measures when they were floated in a consultation paper the government released earlier in 2023. However, it advises that those concerns have been taken into consideration in the draft regulations, particularly in provisions for accredited third parties to conduct identity verifications and “flexibility” for record-keeping.
In joining the ranks of entities reporting to FINTRAC under the auspices of Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), title insurers would be expected to obtain, verify and keep information about property purchasers and other details related to the deal. The latter includes the source of funds for the purchase, and names and addresses of lenders, real estate representatives and/or individuals holding liens on the property. If the purchaser is a corporation, there is an obligation to verify the identity of all directors and beneficial owners, who are defined as individuals who directly or indirectly own or control at least 25 per cent of the corporation’s shares.
Many potential parties to real estate transactions, including brokers, sales representatives, lenders and mortgage administrators are already required to report to FINTRAC. The regulatory analysis frames the inclusion of title insurers as another layer of vigilance “ which would be used by FINTRAC and disclosed to law enforcement to help detect and disrupt illicit activities in the real estate sector”.
Currently, real estate brokers and sales representatives are required to keep information records about the individuals and entities for whom/which they act as an agent in transactions. The proposed regulation expands that requirement to include “any party to the purchase or sale that is not represented by a real estate broker or sales representative”. That’s part of the package of existing obligations under the PCMLTFA, which also requires them to keep a receipt of funds received when acting on behalf of a vendor, and to keep information related to transactions that involve more than $10,000 in cash or virtual currency payments.
“This change would help identify suspicious behaviour when agents cannot identify unrepresented parties in transactions, which could lead to more suspicious transaction reports to FINTRAC,” the regulatory analysis states. “Based on this information, FINTRAC would be better equipped to identify potential money laundering and terrorist financing activities in the real estate sector and disclose that information and analysis to law enforcement officers.”
In addition to the real estate measures, the proposed regulations also address: properties subject to national/international sanctions; money services businesses such as those dealing in foreign exchange, money orders or virtual currency; privately owned and operated cash machines, known as white-label ATMs; and reporting on casino payouts. Collectively, they are all intended to reinforce Canada’s commitment to the international financial action task force (FATF).
It’s proposed that the new requirement for real estate brokers and sales representatives would go into effect as soon as the regulation is finalized and officially filed. Title insurers would have until October 1, 2025 to begin reporting to FINTRAC, in recognition of the need to get new procedures in place.
“It will also provide FINTRAC with sufficient time to update and issue guidance and best practices regarding how reporting entities should meet their obligations, undertake outreach activities, and work with industry to establish typologies that can help new reporting entities gain a better understanding of relevant money laundering and terrorist financing risks,” the regulatory analysis states.
