Guideline on anti-money laundering

Purpose

Licensees providing mortgage services have obligations related to the prevention of money laundering and terrorist financing under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated regulations, which are administered by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). These requirements are separate from, and in addition to, the requirements established under British Columbia’s Mortgage Services Act (MSA), which is administered by BCFSA. BCFSA expects licensees to comply with both legislative frameworks.

This guideline provides guidance to licensees on meeting their obligations to mitigate money laundering and terrorist financing risks. It addresses the following topics:

• the role of licensees in preventing money laundering and terrorist financing  
• the importance of early discussions with clients and borrowers  
• identity verification requirements  
• ensuring the accuracy of information, reporting and communication  
• record-keeping requirements  
• professional and ethical obligations  
• money laundering and terrorist financing risk indicators.  

While this guideline provides practical considerations for supporting compliance, it is not intended to replace FINTRAC guidance. Licensees should review FINTRAC’s published guidance and remain informed of any changes to applicable requirements.

Guidelines

The role of licensees in preventing money laundering and terrorist financing

Money laundering and terrorist financing in the mortgage services industry poses significant risks and potential harm to the public. Bad actors may attempt to disguise funds gained through illegal activities by integrating them into the legitimate financial system through real estate purchases and mortgage transactions.

MSA licensees are well-positioned to identify potential money laundering and terrorist financing activities. For instance, licensees routinely access detailed financial information, verify documentation, and discuss complex financial arrangements with clients, borrowers, and/or lenders.

Licensees play an important role in helping keep B.C. safe and maintaining public confidence in the mortgage services industry by:

• complying with requirements under the PCMLTFA and applicable FINTRAC guidance  
• recognizing indicators of potential money laundering and terrorist financing 
• knowing how to respond when warning signs arise, including filing suspicious transaction reports (STRs) with FINTRAC.  

The importance of early discussions with clients and borrowers

Early in the process, licensees should ensure that clients, borrowers, and other parties to the mortgage transaction understand that certain personal information must be collected and that due diligence measures must be conducted to verify that information. Communicating these requirements early helps build trust and transparency while clarifying a licensee’s legal and regulatory obligations. It may also deter individuals who are seeking to use mortgage transactions for money laundering or terrorist financing purposes.

Licensees should consult their brokerage’s compliance policies and procedures to ensure they are aware of their specific responsibilities. If questions or concerns arise, licensees should discuss any issues or questions with the brokerage’s compliance officer who can provide guidance on how to proceed.

Identity verification requirements

Licensees have obligations under the PCMLTFA to identify persons or entities they provide mortgage services to. Under the PCMLTFA, you must identify any person or entity for the following transactions, or when the following records are required to be kept:

• suspicious transactions  
• large cash transactions  
• large virtual currency transactions  
• receipt of funds records  
• information records  
• mortgage loan records  

Verifying the identity of an individual  

There are several ways to appropriately verify an individual’s identity. FINTRAC recognizes specific methods for identity verification, and licensees should consult the guidance on the FINTRAC website for detailed requirements and instructions.

Some of the acceptable identification verification methods include:

• Government-issued photo identification method

Ensure that the identification document presented is authentic, valid, and current.

This includes physical examination of the document, checking the document’s security features, and confirming that the name and photo match the individual. Record the document’s unique details such as the issuing jurisdiction and expiry date.

• Credit file method

Verify the person’s identity using a credit file that has existed for at least three years and comes from a recognized Canadian credit bureau. The file must match the person’s name, address, and date of birth. Ensure that the search is conducted at the time of verification and document the credit file number and source.

• Dual-process method

Cross-verify identity using two pieces of information from separate reliable sources. This could include verifying the person’s name and address from a utility bill and their name and date of birth from a bank statement. All the information must be valid, current, and consistent with the details provided by the person.

Verifying the identity of an entity  

FINTRAC also provides guidance on how to verify the identity of an entity. When verifying the identity of a corporation, licensees should refer to authentic, valid, and current records, such as certificate of incorporation, provincial securities filings, or a certificate of active corporate status. For instance, licensees can use a database such as Corporations Canada or the B.C. Registry to obtain a corporation’s name, address, and directors.

When verifying the identity of entities other than corporations, licensees can use partnership agreements, articles of association, or similar documents that confirm the entity’s existence and its name and address.

Ownership structures can be complex, and licensees are not expected to become an expert in understanding them. In cases of complicated organizational structures, licensees should discuss any unclear information with their brokerage’s compliance officer who can provide guidance on how they should proceed.

Ensuring the accuracy of information, reporting, and communication

Effective communication and coordination between brokers dealing in mortgages and those lending mortgages are important to support strong anti-money laundering (AML) controls. Licensees should establish clear communication channels to identify and discuss potential risks, share relevant information, and coordinate appropriate responses to suspicious or unusual activity.

If a licensee identifies unusual activity or has concerns about the legality of a mortgage or mortgage transaction, they should notify the lender as soon as possible, providing sufficient details about the nature of the concern.

Following notification, licensees should work collaboratively with the lender to assess the situation and determine an appropriate course of action. However, a lender’s decision regarding the transaction does not affect a licensee’s independent reporting obligations. Where the circumstances give rise to reasonable grounds to suspect that a transaction is related to the commission of a money laundering or terrorist financing offence, the licensee is still required to submit an STR with FINTRAC.

Record-keeping requirements

Mortgage brokerages must keep and securely store all relevant records related to their services. This includes protecting records against all risks of loss, destruction and unauthorized access, use, or disclosure. Mortgage brokers must promptly provide relevant records to their principal broker. Promptly generally means doing something without delay, considering the circumstances. Maintaining detailed and timely records enables effective auditing, supports the tracking of transactions, and strengthens the detection of suspicious activities.

Licensees have record keeping obligations under the PCMLTFA that can be found here: Record keeping requirements for mortgage administrators, brokers and lenders. In addition, licensees have record keeping requirements under the MSA. More information on MSA record keeping requirements can be found on BCFSA’s Mortgage Services Knowledge Base.  

Professional and ethical obligations

Licensees have a responsibility to uphold legal and ethical standards in relation to AML, including identifying areas of their business that are vulnerable to being used by criminals for conducting money laundering or terrorist financing activities. The landscape of money laundering risks, regulations, and best practices evolves over time. It is a licensees’ responsibility to stay informed and to ensure their approach to due diligence, documentation, and escalation remains effective and current.

Compliance with laws and regulations

Licensees must adhere to requirements under the PCMLTFA and its associated regulation, as well as applicable ministerial directives and transaction restrictions. This includes filing an STR with FINTRAC when licensees have reasonable grounds to suspect that a transaction is related to the commission or attempted commission of a money laundering or terrorist activity financing event.

Due diligence

If licensees become concerned about the possibility of money laundering or terrorist financing in a mortgage transaction, they should analyze the situation by asking themselves questions, such as:

• Have I seen any warning signs/risk indicators? 
• Have I fully discussed the situation with my principal broker or compliance officer?  
• Do I have reasonable grounds to suspect that my client is engaging in money laundering or terrorist financing?  
• Should I file a suspicious transaction report? 
• What will be the impact of money laundering and terrorist financing on the reputation of my brokerage or the mortgage services industry? 

Concerns or suspicions that money laundering or terrorist financing is taking place or took place at an earlier time, should be discussed with the brokerage’s compliance officer and/or principal broker.

Money laundering and terrorist financing risk indicators

Licensees may be able to identify potential indicators for money laundering and terrorist financing based on the behaviours and activities of clients or other parties involved in a mortgage transaction. The presence of one or more indicators does not necessarily mean that money laundering or terrorist financing is occurring. However, these warning signs should prompt additional scrutiny, further inquiries, consultation with a principal broker or compliance officer, and consideration of whether a STR should be filed. Licensees should review FINTRAC’s guidance on money laundering and terrorist financing indicators in real estate to identify additional red flags that may be relevant to the transaction.

General warning signs

Warning signs related to a borrower’s identity or background may include situations where:

• The borrower cannot be properly identified using “know your client” procedures.  
• Open-source searches or adverse media reports link the borrower to questionable or suspicious activities, including alleged criminal conduct. 
• The borrower is reluctant to provide complete information or disclose their true identity or occupation. 
• The borrower lacks basic contact information, such as a valid email address, physical address, telephone number, company logo, or identifiable contact person. 

Behavioural warning signs

A borrower’s conduct during the transaction may also raise concerns. Examples include:

• The borrower is reluctant to meet in person and prefers everything to be handled over the telephone or electronically.  
• The borrower refuses to include their name on any document linking them to the transaction or insists that the document be submitted by a third party with no involvement in the mortgage transaction.  
• The borrower expresses unusual concerns about government reporting requirements or the mortgage brokerage’s AML policies or procedures. 
• The borrower shows a lack of concern about transaction risks, commissions, fees or other transaction costs that would normally concern a borrower.  

Unusual transaction warning signs

Certain transaction characteristics may warrant closer examination, including when:

• A property is purchased significantly above or below market value. 
• Information on source of repayment is obscured or seems unreasonable based on the borrower’s profile. For example, the borrower is willing to accept a mortgage contract with a servicing payment that exceeds their ability to pay. 
• A property is refinanced shortly after purchase, particularly where cash-funded renovations are used to increase the property’s value before the property is refinanced to withdraw equity.  
• Large mortgage pre-payments are made shortly after the initial funding, without a verifiable source of funds. 
• The borrower seeks to pay for the down payment or make re-payments using several small bank drafts from unrelated individuals or entities, especially when issued by different financial institutions. 
• The borrower seeks to pay the down payment through a series of amounts below FINTRAC’s reporting threshold of $10,000 and receives them from unrelated individuals or entities.  
• The borrower is interested in having a short closing to expedite the transaction and minimize the time and effort required for due diligence.  
• The borrower has purchased other properties in a short period of time.  
• The borrower is involved in the real estate transaction; however, the ownership of the property is registered in the name of a nominee.  
• The borrower seeks to repay the mortgage shortly after closing despite incurring penalties. 
• The borrower wants to refinance an existing property without a clear business or personal purpose. 
• The borrower appears unconcerned about whether the transaction is economically viable.  

Borrower financial profile warning signs

Concerns may arise where the borrower’s financial circumstances appear inconsistent with the transaction, including when:

• The borrower represents their financial situation in a way that is unrealistic or that cannot be substantiated by supporting documents.

• The borrower seeks to pay off a loan from a lender, but there is no evidence of any prior mortgage payments made to that lender.   
• The borrower has significant assets that appear inconsistent with their income level or financial profile. 
• The borrower cannot or will not state the true source of down payment funds. 
• The borrower makes lump-sum mortgage payments that are inconsistent with their financial profile or income level.  
• The borrower pays the down payment or repays the mortgage using a third party, other than a spouse or a parent. 
• The borrower makes a large down payment that comes from a friend or a distant family member.  

Use of other parties warning signs

The involvement of third parties or complex funding arrangements may also indicate elevated risk. Examples include:

• The borrower pays a substantial down payment in cash and finances the balance from an unusual source, for example, a third party or offshore bank account. 
• Lack of proper proof and accountability for the source and history of significant gifted funds.  
• The borrower uses complex ownership structures or offshore accounts for the transaction.  
• The transaction involves a non-profit or charitable organization with no logical purpose for the organization to be involved in the transaction, or no purpose or connection to the other parties in the transaction. 
• The source of the down payment comes from countries or banking systems that are subject to government sanctions.  

Principal broker considerations

Principal brokers play an important role in supporting their brokerage’s compliance with both the MSA and applicable anti-money laundering and anti-terrorist financing requirements under the PCMLTFA.

In addition to ensuring that licensees are aware of and understand the expectations outlined in this guideline, principal brokers should consider whether their brokerage has appropriate policies, procedures, controls, and training in place to identify and address potential money laundering and terrorist financing risks.

This include, but is not limited to:

• Promoting a culture of compliance and ethical conduct within the brokerage; 
• Supporting licensees in understanding and meeting identity verification, record-keeping, and reporting obligations; 
• Providing training, education, and resources to help licensees recognize money laundering and terrorist financing risk indicators; 
• Establishing processes for escalating concerns and seeking guidance when suspicious circumstances arise; and 
• Monitoring compliance practices and addressing deficiencies where identified. 

Where a mortgage brokerage is subject to obligations under the PCMLTFA, principal brokers should also ensure that the brokerage understands and complies with applicable FINTRAC requirements, including any requirements related to compliance programs, record keeping, risk assessments, ongoing monitoring, employee training, and reporting.

Principal brokers should regularly review FINTRAC guidance and consider whether changes to the brokerage’s business activities, products, services, delivery channels, or client base create new or emerging money laundering or terrorist financing risks.

Definitions

Compliance officer: The individual, with the necessary authority, that is appointed to be responsible for the implementation of the compliance program, under the PCMLTFA.

Compliance program: All elements (compliance officer, policies and procedures, risk assessment, training program, effectiveness review) that a reporting entity is legally required to have under the PCMLTFA and its associated regulations to ensure that it meets all its obligations.

Money laundering offence: An offence under subsection 462.31(1) of the Criminal Code.

Terrorist activity financing offence: An offence under section 83.02, 83.03 or 83.04 of the Criminal Code or an offence under section 83.12 of the Criminal Code arising out of a contravention of section 83.08 of that Act.

Applicable section of Mortgage Services Act, its Regulations, or the Mortgage Services Rules

MSA

s. 31 [Duty to act in good faith]

s. 32 [Records]

s. 33 [Trust accounts]

MSA Rules

s. 29 [Mortgage brokerage responsibilities]

s. 31 [Principal brokerage responsibilities]

s. 32 [Mortgage broker responsibilities]

s. 41 [Duty to verify identity]

s. 42 [Duty to verify other party’s identity]

s. 43 [Duty respecting unlawful transactions]

s. 44 [Duty respecting borrower’s or seller’s legal authority]

s. 45 [Duty respecting accuracy of mortgage application or sale document]

s. 46 [Continuation of duty]

s. 47 [Dishonesty, fraud, etc.]

s. 96 [Financial records]

s. 97 [Trust account and general account records]