Broadened legislative and regulatory framework for combating money laundering and financing terrorist activities: Factoring companies, financing or leasing entities and cheque-cashing businesses

On November 30, 2024, amendments to certain regulations related to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (collectively, the PCMLTFA) were proposed to, among other things, broaden the scope of the PCMLTFA with an expected effective date of October 1, 2025. One of the objectives of these amendments was to harmonize Canadian legislation with the recommendations of the Financial Action Task Force (FATF), the global standard-setting body to combat money laundering and terrorist financing.

In today’s economic and political context, the effective date of some of these amendments, particularly for factoring companies, financing and leasing entities and cheque-cashing businesses, was moved up to April 1, 2025. This legal update gives an overview of the amendments that will come into force in a few weeks.

As a reminder, the PCMLTFA is the cornerstone of Canada's anti-money laundering and anti-terrorist financing regime by imposing strict obligations on the individuals and entities to which it applies. These obligations include, but are not limited to, reporting transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), record-keeping and checking the identity of clients (commonly known as "know your client" or simply "KYC"). FINTRAC is responsible for enforcing the PCMLTFA and monitoring those subject to it.

Factoring companies

As of April 1, all persons and entities engaged in factoring activities will be subject to the PCMLTFA regulatory framework. As such, the PCMLTFA will capture factoring activities carried out by factors, with or without recourse against the person having assigned said accounts receivable. The obligations applicable to “factors” under the PCMLTFA will apply, for example, to the following persons and entities:

• individuals and entities “buying” their clients’ accounts receivable, taking on 100% of the collection risk in return for the payment of fees and commissions;
• persons and entities offering “advances” to their clients, which may be reimbursed by their clients under certain conditions if the accounts receivable are not collected.

Financing or leasing entities

As of April 1, individuals or entities offering financing or leases for certain property will be subject to the PCMLTFA regulatory framework. The relevant property is as follows:

• property used for commercial purposes (other than real property and immovables);
• passenger vehicles located in Canada (i.e., a motor vehicle designed or equipped to transport a maximum of 10 persons on and off the roads, with the exception of certain emergency vehicles, hearses and utility trucks); and
• property with a value of more than $100,000 (other than real property and immovables).

Essentially, all persons and entities offering financing or leasing for (i) passenger vehicles, (ii) personal property used for commercial purposes, regardless of the amount (which could include vehicles that would not be considered passenger vehicles in some cases), and (iii) personal property used for personal purposes if its value exceeds $100,000 will be subject to the obligations applicable to "financing or leasing entities" under the PCMLTFA.

Cheque-cashing businesses

As of April 1, 2025, all persons and entities offering cheque-cashing services will be considered “money services business” within the meaning of the PCMLTFA and will therefore be subject to the PCMLTFA regulatory framework.

Although some of these persons and entities are already covered by the PCMLTFA (notably because of other activities carried out by them that make them subject to the PCMLTFA), the FATF and FINTRAC analyses have recommended that persons and entities offering cheque-cashing services should be subject to money laundering and terrorist financing obligations, since some of these persons and entities managed to escape the scope of the PCMLTFA. The PCMLTFA was therefore amended so all persons and entities offering cheque-cashing services (in any form) would be subject to the obligations applicable to “money services business” under the PCMLTFA.

Overview of obligations arising from the PCMLTFA regulatory framework

The PCMLTFA sets out a number of obligations that apply to the different groups of persons and entities subject to it. These include obligations to report certain transactions to FINTRAC (e.g., suspicious transactions, transactions above a certain amount, etc.), record-keeping (e.g., large transaction records, etc.) and verifying the identity of a client. 

In addition, the PCMLTFA provides that persons and entities subject to it must implement a compliance program, which must include:

• appointing a compliance officer;
• analyzing the applicable risks of money laundering and the recycling of the proceeds of crime;
• developing policies and procedures related to the obligations arising from the PCMLTFA;
• developing and implementing a training plan and program; and
• developing procedures for reviewing the compliance program.

In light of the above, persons and entities operating in the relevant sectors will need to make it their priority to understand their obligations under the PCMLTFA and its related regulations and put in place the measures required under that Act.