Budget Implementation Act: Key Changes for Financial Institutions

In Budget 2023, the Government of Canada announced its intentions to strengthen measures to protect financial institutions from foreign interference and efficiently address emerging risks to Canada’s financial sector. Among these measures, and as reported in our April 2023 Update, legislative amendments were proposed to bolster Canada’s anti-money laundering/anti-terrorist financing (AML/ATF) regime and to modernize financial sector oversight.

On June 22, 2023, Parliament passed Bill C-47, the Budget Implementation Act, which brings into force certain amendments previously announced. Key aspects of these amendments are summarized below.

AML/ATF Regime

Bill C-47 proposed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), Special Economic Measures Act (SEMA), and the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) (JVCFOA) to strengthen the investigative, enforcement, and information-sharing tools of, and to address the gaps in Canada’s AML/ATF regime. The amendments that are now in force serve to:

• Expand the directive powers of the Minister of Finance to address instances where the Minister determines there is a risk that a foreign state, a foreign entity, or a person or entity that is subject to the PCMLTFA may be facilitating the financing of threats to the security of Canada.
  
• Strengthen the registration framework for money-service businesses (i.e., persons or entities engaged in foreign exchange dealing, remitting funds or transmitting funds, dealing in virtual currencies, among other activities).
  
• Create two new offences, (i) relating to persons or entities who engage in activities for which they are not registered under the PCMLTFA and who undertake financial transactions structured to avoid reporting the transaction to FINTRAC, and (ii) relating to disciplinary measures taken by employers against employees who fulfill obligations under PCMLTFA.
  
• Set out a control test provision for the first time in the SEMA and the JVCFOA. Control is defined to capture legal control and control based on a person’s ability to drive an entity’s activity. Consequently, where a person controls an entity, any property owned or held by the entity is deemed to be owned by that person.
  

  Specifically, a person is deemed to control an entity if:
  

  • the person directly or indirectly holds 50% or more of the shares or ownership interests in the entity or 50% or more of the voting rights in the entity,
    
  •  the person is able to change the composition or powers of the entity’s board of directors directly or indirectly, or
    
  • it is reasonable to conclude, having regard to all the circumstances, that the designated person is able to direct the entity’s activities directly or indirectly and through any means.
    
• Strengthen Canada’s ability to take economic measures against a foreign state or persons who are engaged in prohibited activities pursuant to the SEMA and the JVCFOA. The Governor in Council is now authorized to order the seizure of any property situated in Canada belonging to such persons.
  
• Facilitate the sharing, between the Minister of Finance, Office of the Superintendent of Financial Institutions (OSFI), and FINTRAC, of information that relates to their respective mandates. For instance, the PCMLTFA now requires FINTRAC to disclose information that may be relevant to the Minister of Foreign Affairs or a Minister designated under the SEMA or JVCFOA, where it reasonably suspects the designated information would be relevant to investigating or prosecuting a money laundering offence or a terrorist activity financing offence.

Modernization of Financial Sector Oversight

Budget 2023 set out the federal government’s intention to amend the Bank Act, the Insurance Companies Act, the Trust and Loan Companies Act, and the Office of the Superintendent of Financial Institutions Act (the “OSFI Act") to adequately protect financial institutions and address threats to their integrity and security and any related risks to Canada’s financial system. The amendments that are now in force serve to:

• Expand the mandate of OSFI to include supervising federally regulated financial institutions (FRFIs) to determine whether they have adequate policies and procedures to protect against threats to their integrity and security, including protection against foreign interference.
  

• Expand OSFI’s advisory powers to allow OSFI to advise the management and board of directors of an FRFI when (i) the institution is not in good financial condition or is not complying with its governing law or supervisory requirements under that law, or (ii) the institution does not have adequate policies and procedures to protect itself against threats to its integrity or security. In such cases, OSFI now has the power to take, or require the management or board to take the necessary corrective measures or series of measures to deal with the situation immediately.

On June 26, 2022, the Superintendent of Financial Institutions issued a statement confirming that these amendments will contribute to public confidence in the Canadian financial system. The Superintendent also confirmed that, beginning January 1, 2024, FRFIs will be required to establish and adhere to policies and procedures to protect themselves from threats to their integrity and security, including foreign interference. OSFI will examine each FRFI’s policies and procedures to determine if they are adequate and will annually report these examinations to the Minister of Finance.

Looking Forward

We will continue to monitor these developments. For further information, please contact any member of our Financial Services Regulatory Group.