Private mortgage lenders fall under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its regulations. Oversight and reporting go to Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
For newcomers, the regulatory requirements may initially appear overwhelming. In practice, however, even small-scale investors with modest capital can successfully navigate the system. The key is to establish a clear compliance framework from the outset, which will protect you from unnecessary risk and provide long-term benefits as your lending activities grow.
Reminder: A casual, one-off private mortgage from an individual’s own savings is generally not considered “engaged in the business” and therefore falls outside the scope of a FINTRAC reporting entity, provided they do not otherwise trigger the definition (e.g. they are not also a licensed broker or administrator).
When Do Private Lenders Need to Submit Reports to FINTRAC?
As a private mortgage lender, you are required to report to FINTRAC in specific circumstances, not only when something seems suspicious. You must file a Suspicious Transaction Report whenever you have reasonable grounds to suspect that a transaction, attempted transaction, or client activity is connected to money laundering, terrorist financing, or sanctions evasion.
In addition, you must submit a Large Cash Transaction Report if you receive $10,000 or more in cash in a single deal or within a 24-hour period, and a Large Virtual Currency Transaction Report if the same threshold is met in cryptocurrency. You are also obligated to file a Terrorist Property Report if you know or believe that you hold property owned or controlled by a listed terrorist entity. These reports are mandatory even if the transaction appears legitimate.
In short, you report whenever suspicion arises or when the law sets a clear threshold or trigger, regardless of whether the transaction seems ordinary.
Core Obligations
1. Compliance Program
Every private mortgage lender must establish and maintain a compliance program. This program must appoint a compliance officer, set written policies and procedures, include a risk assessment of the business, deliver staff training and undergo an effectiveness review at least once every two years.
2. Client Due Diligence/Know Your Client (KYC)
Before providing a mortgage or entering into a business relationship, you must verify the client’s identity. If the client is a corporation or other entity, you must also determine and verify beneficial ownership. Beneficial ownership refers to the true ownership and control of an asset, company or account, even if it is legally registered in another person’s or entity’s name. Enhanced due diligence is required for high-risk clients, such as politically exposed persons (PEPs).
3. Enhanced Measures
If a client or transaction is considered higher risk, you must apply stricter measures. This includes verifying the source of funds, conducting enhanced identity verification and increasing monitoring. Special checks are required for PEPs, heads of international organizations and in cases where large sums (for example, $100,000 or more) are involved.
4. Transaction Reporting
Mortgage lenders must report certain transactions to FINTRAC. These include:
- Suspicious Transaction Reports, whenever there are reasonable grounds to suspect money laundering, terrorist financing, or sanctions evasion.
- Large Cash Transaction Reports, for amounts of $10,000 or more in cash.
- Large Virtual Currency Transaction Reports, for the same threshold in virtual currencies.
- Terrorist Property Reports, if you become aware of assets owned or controlled by listed terrorist entities.
- Sanctions evasion reports, a new requirement as of August 2024.
5. Record-Keeping
Mortgage lenders must keep records for at least five years. Required records include copies of all reports sent to FINTRAC, large cash or virtual currency transaction records, receipt of funds records, mortgage loan and client information (including financial capacity and occupation), beneficial ownership records,and corporate authority documents when the client is an entity. All records must be accessible within 30 days if FINTRAC requests them.
6. Ongoing Monitoring
Once a mortgage is in place, you must continue to monitor the client and their transactions. This includes checking for unusual activity, re-assessing risk and ensuring PEP status or other risk factors are updated over time.
7. Ministerial Directives and Sanctions Compliance
You must follow any ministerial directives issued under the PCMLTFA, which can impose extra requirements or restrict certain transactions. You are also required to comply with sanctions laws and must report when you suspect a transaction is connected to sanctions evasion.
Practical Impact on Private Lenders
Private lenders often operate outside the traditional banking system, but they are now part of Canada’s anti-money laundering regime. You will need to introduce client onboarding processes with full KYC, collect beneficial ownership information, monitor transactions, and maintain proper record systems.