Getting Ready for the June 1 FINTRAC Changes: Virtual Currency Obligations
CATEGORY: Practice Tips
TAGS: 2021 FINTRAC Changes Anti-Money Laundering FINTRAC Virtual Currency
By: Adam Feldman, CAMS, CAMS-RM, CSC, Guest Contributor
The rise of virtual currency
If you've followed the news lately, you've probably noticed the increased prominence that virtual currencies are gaining on the global financial landscape. A 2019 study estimated that 9% of the global population owns Bitcoin, while British Columbia alone is home to 229 Bitcoin ATMs. In anticipation of the increased mainstreaming of virtual currencies, the Ministry of Finance has introduced new federal anti-money laundering regulations that require brokerages to verify an individual's identity, make a third-party determination, keep a record, and submit a report to FINTRAC when conducting a large virtual currency transaction. These obligations come into force on June 1, 2021.
What is a large virtual currency transaction?
A large virtual currency transaction occurs when a brokerage receives virtual currency valued at $10,000 or more. This could be received in a single transaction or multiple transactions from or on behalf of the same person or entity in a 24-hour period.
What do I need to do if I conduct a large virtual currency transaction?
Starting June 1, when a brokerage conducts a large virtual currency transaction, it needs to take the following actions:
- verify the identity of the individual or entity that conducted the transaction,
- make a third-party determination,
- keep a record of the transaction, and
- submit a report to FINTRAC.
It's worth mentioning that brokerages don't need to verify the identity of an individual or entity if they've already done so and are confident in the accuracy of the information that was used to verify the identity. However, brokerages need to take reasonable measures to determine if the transaction is being conducted on behalf of a third party for each large virtual currency transaction, even if a third-party determination has been previously made.
How much time do I have to complete these measures?
At the time that a brokerage receives virtual currency above the reporting threshold, it also needs to keep a record of the transaction, verify the identity of an individual, and take reasonable measures to make a third-party determination. Large virtual currency reports need to be submitted within five business days after the brokerage receives the virtual currency.
Wait, I'm not ready!
There are a lot of regulatory changes coming into force on June 1, and FINTRAC has stated that it will exhibit flexibility when assessing a reporting entity's compliance with the new regulations. Specifically, with respect to large virtual currency transactions, FINTRAC has stated that if, despite its best efforts, a brokerage does not have a process in place for reporting these transactions by June 1, it should keep a record of all virtual currency transactions that meet or exceed the reporting threshold and submit reports for those transactions once a reporting process has been implemented. Brokerages need to have the reporting process in place by December 1, 2021, and unreported large virtual currency transactions that are conducted between June 1 and November 30, 2021, will need to be reported to FINTRAC by March 31, 2022, at the latest.
Can I accept payment in virtual currency right now?
Although virtual currency may become more common in real estate deals in the future, it is not likely to play a prominent role in British Columbia real estate deals for the time being. The Real Estate Council of British Columbia (RECBC) has issued guidance stating that virtual currencies such as Bitcoin cannot be held in trust, so a third party would have to hold it, and recommending that consumers seek legal advice if they want to explore this method of payment. Further, the Contract of Purchase and Sale created by the British Columbia Real Estate Association and the Canadian Bar Association - BC Branch does not currently include virtual currency as an accepted means of payment. In addition, some BC real estate boards don't allow the purchase of real estate using virtual currency and brokerages may have their own policies and procedures in place related to the use of virtual currency.
In short, if you're thinking of representing a client that wants to purchase or sell property in exchange for virtual currency, be sure to reach out to RECBC, your local real estate board and your brokerage for guidance first, and advise your client to seek independent legal advice.
Remember, brokerage really means real estate professional!
Although both brokerages and real estate professionals have obligations to comply with federal anti-money laundering regulations related to reporting suspicious transactions or the possession or control of terrorist property, the bulk of the compliance obligations, including large virtual currency transaction requirements, fall to the reporting entity. This is typically the brokerage. However, a brokerage often delegates certain compliance processes to their real estate professionals who help the brokerage remain compliant by conducting those processes in the manner specified by the legislation, regulations, and brokerage policies and procedures.
Be sure to check out the other blogs in this series at the links below:
- Getting Ready for the June 1 FINTRAC Changes: Business Relationships
- Getting Ready for the June 1 FINTRAC Changes: Beneficial Ownership
- Getting Ready for the June 1 FINTRAC Changes: Politically Exposed Persons - Part 1
- Getting Ready for the June 1 FINTRAC Changes: Politically Exposed Persons - Part 2
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