Canada Publishes Consultation on Anti-Money Laundering and Anti-Terrorist Financing Regime

Canada’s Department of Finance published its consultation on Strengthening Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime where the following questions related to Virtual Currency, Digital Assets and Technology-Enabled Finance were raised.

Are there money laundering and terrorist financing risks posed by new financial technologies that are insufficiently covered or mitigated by the AML/ATF framework?

What legislative and regulatory remedies could be used to address the risks posed by new FinTech products or services (e.g., anonymity enhancing coins (AEC) / privacy coins, crypto-mixers and DeFi)?

Should reporting entities be prohibited from transferring (and receiving) virtual currencies to (and from) crypto-mixers/crypto-tumblers not registered with FINTRAC?

What AML/ATF obligations are needed for organizations hosting a Metaverse or having a platform for MSB-like activity conducted through their technology?

What AML/ATF requirements should be extended to Fintechs that are currently not regulated? Which types of Fintechs would be implicated?

How can the government ensure that AML/ATF obligations for this sector are technologically neutral so that new technologies that pose AML/ATF risks are incorporated into the Regime in a timely manner?

With its current Travel Rule-related regulations in force since June 2021, which pre-dates the FATF Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers and some of the later developments in the technologies mentioned in the consultation paper such as crypto-mixers/tumblers, NFTs, anonymity enhancing coins and tokenized assets.

For example, some of these risks inherent to these new technologies can be mitigated through a comprehensive counterparty due-diligence requirement or introducing enhanced risk mitigating measures for unhosted wallets, something we have noticed other regulators employing.

We will look to organising an industry meet-up with our existing clients and local industry, typical to our industry-engaging efforts in other jurisdictions to formulate a response to this regulatory consult in early July. Do hit us up if you are keen!