How to comply with Canada’s AML requirements

Canada’s status as the second-largest economy in North America and as a major center for business and finance means it faces significant money laundering risks. 

In 2021, the Financial Action Task Force (FATF) provided an update on its assessment of Canada’s anti-money laundering and countering the financing of terrorism (AML/CFT) regime after a 2016 mutual evaluation report identified a range of shortcomings. While the FATF agreed that the country had made progress, some scrutiny remains. In 2024, the Office of the Superintendent of Financial Institutions (OSFI), Canada’s banking regulator, promised to increase the intensity of its AML oversight. 

In this context, and faced with an array of sophisticated money laundering threats, Canadian firms should ensure they are aware of their AML obligations and have robust compliance programs in place to meet them. 

Canada’s AML regulations

Canada’s AML regime is built around the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). All Canadian financial institutions (FIs) must comply with the PCMLTFA, alongside other types of firms such as life insurance companies, brokers and agents, securities dealers, casinos, real estate brokers, and money services businesses. 

The PCMLTFA was introduced in its original form in 2000 and has been updated several times since then, generally to expand the scope of the Act and its application to different types of businesses. For example, Canada’s 2024 Budget included proposed amendments around cross-business information-sharing and extending regulatory obligations to firms like cheque-cashing businesses and factoring companies. 

Although the PCMLTFA is Canada’s primary AML/CFT regulation, it is supplemented by a few other pieces of legislation: 

• Canada Business Corporations Act sets out Canada’s corporate governance framework, including record-keeping requirements relating to beneficial ownership. 
• The Criminal Code gives the federal government jurisdiction to prosecute money laundering and terrorist financing offenses and covers various predicate offenses in these crimes.
• The Charities Registration (Security Information) Act allows the Canadian government to collect information that may reveal a charitable organization’s ties to terrorist groups. 

Canada’s penalties for non-compliance with the PCMLTFA include fines ranging from $250,000 to $2 million or imprisonment for up to five years, depending on the severity of the offense. 

FINTRAC’s role in enforcing AML regulations

Canada’s primary financial regulator is the Financial Transactions and Reports Analysis Centre (FINTRAC), which is responsible for enforcing compliance with the PCMLTFA. FINTRAC monitors the institutions under its jurisdiction, performs supervisory activities, issues penalties for non-compliance, and works with other law enforcement agencies to investigate FIs suspected of wrongdoing.

As Canada’s prudential regulator, OSFI collaborates with FINTRAC on compliance, acting on information from FINTRAC to oversee FIs’ governance structures and reduce their regulatory burden where possible.

AML requirements for financial institutions in Canada

To ensure compliance with the PCMLTFA, regulated firms in Canada must abide by certain rules and principles around designing a compliance program, keeping records, and reporting to FINTRAC. Specifically, key points include: 

• Compliance program requirements: Firms must appoint an AML compliance officer responsible for implementing the program, conduct risk assessments to guide their program, develop and update written compliance policies and procedures, carry out training to enable employees to follow these policies, and build in a schedule of audits and reviews. 
• Customer identification requirements: Firms must be able to verify their clients’ identities, including beneficial ownership and third-party determination. They must also be able to identify politically exposed persons (PEPs) and their relatives and close associates (RCAs). 
• Ongoing monitoring requirements: After beginning a business relationship with a customer, firms must monitor their transactions and activities to ensure they align with the expected behavior for their customer profile and risk level.
• Record-keeping requirements: Firms must document information on client identification, transactions, and accounts, and be able to supply these documents to FINTRAC within 30 days if requested. 
• Reporting requirements: FIs must submit suspicious transaction reports (STRs) to FINTRAC in cases where they have reason to believe a transaction may be linked to a money laundering or terrorist financing offense. They must also report any transactions of $10,000 or more or multiple transactions totaling this threshold sent by or to the same account within 24 hours. This includes virtual currency transfers, casino disbursements, and cash transactions. 

The Canadian government occasionally introduces ministerial directives, which require firms to apply additional measures to transactions relating to specific foreign jurisdictions or entities with a high risk of money laundering or terrorist financing. As of 2024, there are directives in place relating to Russia, North Korea, and Iran. 

Canada’s 2023-26 AML/CFT strategy

As part of its ongoing efforts to combat financial crime, Canada’s 2023-2026 AML/CFT strategy introduces key reforms aimed at addressing gaps in existing frameworks, enhancing regulatory oversight, and improving enforcement outcomes. Many of these key updates were discussed in our webinar ‘Banking in Canada: Your AML roadmap’, including:

• The introduction of the Canada Financial Crimes Agency: This new agency will lead AML/CFT enforcement, focusing on improving the investigation, prosecution, and recovery of illicit assets. It addresses previous criticisms about the low rate of financial crime prosecutions and aims to boost operational efficiency by centralizing enforcement efforts.
• Enhanced information sharing: A key pillar of the strategy is improved information sharing, both within Canada and internationally. This includes sharing intelligence among financial institutions, regulators, and government entities, which is crucial for identifying and preventing complex money laundering schemes.
• Beneficial ownership reporting: Since January 2024, businesses in Canada have been required to submit beneficial ownership information, ensuring transparency around the true owners of corporations. This is designed to combat the use of shell companies for money laundering and aligns with international standards. The new measure is expected to particularly impact sectors like real estate, where hidden ownership structures are a common risk.​
• Expansion of regulatory coverage: The 2024 federal budget broadened the PCMLTFA to include factoring companies, cheque-cashing businesses, leasing firms, and other financial intermediaries that may be vulnerable to misuse for money laundering or terrorist financing. 
• Transparency on AML violations: FINTRAC now has the authority to publish more details about administrative monetary penalties and violations, increasing transparency in enforcement. This is aimed at deterring non-compliance by making public examples of entities that fail to meet regulatory obligations.
• Focus on new technologies: The strategy acknowledges the increasing risks posed by digital assets and emerging technologies like cryptocurrency, decentralized finance (DeFi), and non-fungible tokens (NFTs). These areas are particularly vulnerable to abuse due to their anonymity, cross-border functionality, and limited regulation. To address this, the government is enhancing its regulatory framework to better manage these risks, aligning with global trends towards tighter regulation of the digital asset space.

AML compliance for Canadian FinTechs

Our complete guide explains everything you need to know about the AML landscape in Canada and how to stay compliant.

Download your copy

Best practices for AML compliance in Canada

A compliance team working in a regulated Canadian firm faces one essential challenge: translating technical legal requirements into practical, actionable measures. With this in mind, a few best practices exist for optimizing compliance with Canadian AML regulations. 

1. A risk-based approach: As recommended by the FATF, a risk-based approach should form the bedrock of any firm’s compliance program. This involves using regular risk assessments to guide specific policies and procedures, highlighting the particular risks the firm is likely to face, and prioritizing resources to address these. 
2. Customer due diligence (CDD): Firms should implement CDD measures to establish and verify their customers’ identities accurately. To maximize their ability to achieve compliance, this should include adverse media screening, PEP screening, and sanctions screening. 
3. Ongoing monitoring: Even after onboarding, firms should continue to monitor and update their customers’ risk profiles. This means that firms can take appropriate action if a customer’s risk profile changes – for example, by featuring in a negative news story or being linked to new sanctions designations. 
4. Specialist AML technology: Firms should take advantage of the wide range of AML-specific tech solutions the market has to offer. The data analysis requirements involved in modern AML compliance mean that targeted adoption of machine learning (ML), in particular, can significantly benefit regulated firms. 

Advanced AML solutions for Canadian firms

ComplyAdvantage’s AML solutions let Canadian firms manage risk across the entire customer lifecycle. With proprietary data and intuitive, ML-powered screening tools, firms can maximize their ability to detect and prevent financial crime and use full PCMLTFA compliance as a competitive advantage. 

• Financial crime risk intelligence: ComplyAdvantage provides firms with market-leading, global data on sanctions and watchlists, PEPs and RCAs, and adverse media, enhanced by natural language processing and updated in real-time. 
• Payment screening and customer screening tools: Drawing on these proprietary databases, ComplyAdvantage’s screening solutions use risk-optimized matching algorithms to reduce false positives, letting firms onboard customers and process transactions at scale. 
• Ongoing monitoring: Compliance teams benefit from dynamic risk scoring and automated case prioritization, which streamline workloads and allow officers to tackle the most important cases first. 
• Transaction monitoring: ComplyAdvantage’s AI-powered transaction monitoring solution comes with an extensive rules library of financial crime typologies, a no-code rules builder, and scalability to billions of transactions, allowing firms to reduce false positives by up to 70 percent.