EMAIL FROM DERYK

Sent: 09/23/2024

Subject Line: ABW FINTRAC Update *Mandatory Read - Please save this email*


Hi Team,


As we are all aware, new FINTRAC regulations to combat money laundering and anti terrorist activities become applicable to all Mortgage Brokerages, their employees and licensees Oct 11, 2024. These Fintrac regulations are mandatory and knowledge and compliance is required by all ABW employees and licensees (sub brokers). 


The new FINTRAC regulations applicable to our mortgage industry represent a significant change in how we conduct our business, how we interact with our clients. How we document FINTRAC compliance. It also increases our mutual time allocation and costs in meeting all risk assessment and Fintrac due diligence requirements.


This represents a paradigm shift in our business model. It changes the relationship between us (ABW Brokerage and you as licensees), as from the onset, compliance falls not only on each of you but on us, ABW, your brokerage partner as Fintrac has put the brokerage as centrally responsible for compliance review and on-going monitoring. 


Through the previous months we have spent countless hours understanding our collective FINTRAC requirements, exploring tools and platforms, working with lawyers/consultants, and ultimately creating our new mandatory process to ensure that we are compliant as a group. We all need to be protected.


An important consideration is that FINTRAC (and other regulators) can and will discipline both the Agent & Brokerage as they see fit. This means that if you are not following the process and ensuring the correct information is collected / submitted, FINTRAC may elect to discipline you directly. 



ABW Initial Implementation Activities

By now each of you should have completed or registered for the REMIC FINTRAC training. If not, please follow these links and do so by Oct 11th. 

  • DLC Broker Registration: Click Here
  • MA Broker Registration: Click Here
  • There are TWO sessions left: Sept 27th and October 5th


Policy Documents & Guides

All policy & training guides are hosted on the ABW Intranet and you are expected to review in detail before Oct 11th: https://www.joinabw.ca/fintrac We will be sending these for review & e-signature before Oct 11th but you will need to review prior to receiving this. 


*Policy documents will be updated accordingly over time and you will be notified of any changes.



Submission Platform Comparison & Consideration:

We continue to investigate technology options that will support a more efficient & effective process. Our main data storage and recording systems are submission platforms, Velocity and Expert. We continue to strongly suggest and ask you to covert your business to Velocity, specifically because of FINTRAC. The bulk of our industry is scrambling to find solutions, understand requirements and plan for the future. 


As of today, Expert/Filogix has done very little to support you and us (Brokers and Brokerages) with FINTRAC. We have had many meetings with Expert with the most recent being this morning. They have openly stated (this morning) that they are nowhere near Velocity from a FINTRAC perspective and are very impressed with what they have created.


  • You will pay an increased cost for every credit bureau pulled (around $3 per person) in order to have access to Terrorist, Section and Politically Exposed Persons lists.
  • There is currently nowhere to track this information in Expert which means there is no capability for reporting, recording keeping and on-going monitoring. 
  • For AML reporting & audits, you/we need access to records of each watch list confirmation and the ability to pull reporting for on-going monitoring. As is, there is no way to track, report or monitor.
  • They also do not have a function to complete the on-going monitoring checks and will be relying on Equifax. We do not have the specifics on this but I have to assume that there will be an extra cost to you every 1, 3 or 5yrs to complete the updated monitor check through Equifax. This will be a significant cost considering we are not only required to check funded mortgage clients, but ALL clients after ID is verified. 
  • When needed, you will need to pay Verifast for third party identity verification.
  • There is currently nowhere to track how you verified ID. 
  • For AML reporting & audits, you/we need access to records of how ID was verified and the ability to pull reporting for on-going monitoring. As is, there is no way to track, report or monitor.
  • Currently there is no option for a Risk Assessment rating (low, medium or high) which is mandatory for FINTRAC. Filogix has added one button for high risk rated clients and Suspicious transaction reporting, this is not enough. You will see this in the Mortgage Classification section of Expert (same section where you tick commercial, construction, reverse etc)
  • As per requirements, we need access to live reporting to confirm which clients are rated low, risk and high. This is also required to complete annual media monitoring.


Given all of the above, in order for us to be compliant, we would need to implement a rigorous manual process for both the Broker and Brokerage, and costs would apply on a per deal basis. As we are unsure exactly what this process will require, costs are TBD. Its unfortunate to see one of the largest submission platforms in the Country putting such little effort into such a drastic change for the industry. 



As of today, Velocity has confirmed the following:

  • ID Verification: Velocity will have an ID Verification section where you can record how ID was verified. They also have partnered with Fastkey for third party ID verification at a cost of per client, when needed (its expected that 90% of ID’s can be verified without cost.)
  • Watch Lists: Velocity has built in a direct access point to Government sites that will confirm Terrorist, Section and Politically Exposed Persons lists.
  • Politically Exposed Persons: Velocity has built in a PEP section with questions that must be answered, note bar and PEP declaration that can be sent and e-signed from Velocity.
  • Risk Assessment: Velocity has created a risk assessment section with the ability to rate low, medium or high and a notes bar for comments.
  • Reporting & Monitoring: Velocity has created a Broker and Brokerage portal that provides detailed access to all files that are coded based on their risk assessment status, confirmed PEPS/Sanction/Terrorist lists.
  • Velocity will auto-monitor clients based on their risk assessment rating. 


Given all of the above information, you can see that Velocity has come to the table with an excellent solution for Brokers and Brokerages. For this reason, we are strongly suggest and asking you to considering moving your business to Velocity if you are not currently using it. We are very grateful to have a partner like Velocity that has taken the lead to support their Brokers and Brokerages.



Fintrac Risk Assessment Training

We attach the following link to our ABW Fintrac Risk Assessment policy guidelines. Please review and ensure you incorporate into your daily practises. 

https://www.joinabw.ca/fintrac


Every client relationship entered, (application commenced) requires a Risk Assessment designation in the file. This assessment must be started on onset of the initial commencement of a business relationship (Application Received / ID Verified) and carry on throughout the relationship and updated as additional information is received. 

Note this is NOT specific to funded mortgages. AML requirements are triggered once you enter into a client relationship. You enter into a business relationship with a client the first time that you are required to verify their identity, which is when an application or documents are received. 


The risk assessment is subject to 5 years of follow up review, updates, retention of documents by you and ABW.


**All client files, risk assessment, important file notes, supporting documentation and evidence of FINTRAC due diligence completion activities is to be forwarded to ABW Compliance officer at the time the file seizes to be an active file, either funded or application suspended for whatever reason. NOTE: All Files are subject to these requirements, regardless if a funded mortgage occurs.)

Any determination of a STR, PEP or TRA must be forwarded to the ABW Compliance Officer immediately for their review, investigation and forwarding by ABW to Fintrac or other agency as required. 

Only the ABW Compliance Officer approves and submits these suspected activity reports, not you as the licensee. Currently we are working on the delivery method of submitting these files but from the onset Oct 11th, these submission requirements are effective.


ABW Fintrac Policy and Procedures Manual

We attach and link our initial ABW Fintrac Policy and Procedures Manual, as we develop new methods of simplifying some of the processes, we will update the manual and shared for review. CLICK HERE




In summary the important new requirements are highlighted below:


Prospect/Lead Screening

In view of the time required and costs involved for FINTRAC compliance requirements we recommend that initial prospect / lead inquiries be well screened to limit unnecessary applications.


On commencing a business Relationship.


When a client requests any service in facilitating a mortgage transaction by entering into an application and consent agreement, a relationship as occurred. We must immediately commence AML/ATFA activities. KYC rules are always at the forefront of all our broker activities and the basis of our licensed broker activities in all areas of regulatory compliance.


EVERY client, even your family members or past clients, must now undergo the complete, Fintrac requirements applicable after Oct 11th, no exceptions.

  • Acceptable government valid photo ID must be taken, verified, saved and method of verification noted in file, all in accordance to Fintrac authentication and/or secondary requirements. Actual in person, zoom or loom ID verification is preferable, however secondarily verification through credit bureau, Photo ID verification software services is acceptable, but at your costs. This becomes an upfront activity that cannot be delayed. 
  • Credit Bureau Report is immediately required to confirm identity and note any Risk Assessment factors, it may also assist in ID verification. (This cost is new to you, especially for applications not yet reviewed for lender acceptability) We are also working with Equifax for new services that may do secondary ID verification and Terrorist watch list/PEP investigations, but these are at additional costs to you.
  • Terrorist watch list inquiries must be done with each agency listed in Fintrac requirements. Notes of verification actions taken/results must be added to client file with copy of agency response saved. (We are working with Velocity on new FREE services to facilitate these agency requirements, more to follow 
  • Indentication of PEP Politically Exposed Persons must be completed. If you determine an applicant is a PEP , refer to the ABW Compliance Officer for guidance. Again, we are working with service providers to provide programs for these search requirements. Velocity is currently working on a free service and Expert is offering a paid service through Equifax.
  • Every File requires a FINTRAC Risk Assessment from onset, updated ongoingly
  • If you determine any initial hesitation to comply with ID requests, irregularities or uncover any Money laundering risk factors, PEP situations or Sanction list inclusion confirmations, the appropriate STR, PEP or TAR must be immediately forwarded to the ABW Compliance Officer ( with details of situation and file records) and their risk assessment increased.


Ongoing Due Diligence

As you commence application and document collection and review you must be vigilant for authenticity and signs of money laundering or Terrorist property activities. As usual, it is KYC. 

  • It's not just lender requirements now, we must also meet all Fintrac compliance requirements and evidence warning signs were investigated, documented and noted in file.


Income:

  • Look for unusual income sources, inconsistent financial activities or unexplained income, significant income source changes 
  • Authentic documents ( T4’s, LOE, bank statements etc.) 
  • Examine any repetitive and/or large cash-based transactions
  • Look for unexplained changes from past dealings with repeat clients


Downpayment 

  • Is the amount and source of downpayment consistent to their income and savings history.
  • Do bank statements provided evidence unusual deposits from unknown sources or cash
  • What was previous nature of client activities, do they show large bulk downpayments on existing or previous mortgages, multi purchase and sale activities
  • If a gift from family sources determine relationship, and source of THOSE monies, again investigate and get documentary evidence and save notes to file. You may need to complete ID verification as well
  • If an outside family source, exercise additional investigation on the gifting party especially any business contributor or non family member. Confirm source and reason for gift, look for suspicious reasons or complicated business relationships.


Documentation

  • Record everything
  • Document everything
  • Follow Fintrac reporting processes and forward to ABW Compliance Officer
  • Update Fintrac Risk assessments


Costs

We recognize these new government regulations change our daily activities, require additional time commitments and represent additional operating costs to your business.


They in turn have significantly added responsibility, staffing changes and business risk to us as your brokerage partner. 


Please understand that these new Fintrac ABW brokerage requirements make ABW responsible for training, investigation, compliance reviews on thousands of files per year, ongoing 1,3 & 5 year audits, policy creation as well as the new Compliance responsibilities, Fintrac Audit support and lastly the significant liability and business risk it poses.


While we work diligently to streamline the impact, create new, inexpensive service provider solutions, we are boldly aware that Brokerage costs will increase and will need to be shared amongst the Brokerage. We can not advise you currently of what this may amount to, but be certain that, being a Certified Fintrac Certificate holder, using the most effective service provider ( Velocity so far) will greatly reduce the required cost sharing requirements. We will proceed with 100% transparency as always.


Conclusion

We all must recognize the importance of these regulations to our country’s reputation, to public support and faith in our industry standards, to do our part in preventing money laundering and terrorist property activities and lastly to prevent penalties, fines or imprisonment.

Fintrac regularly does audits on every brokerage and associated licensee brokers, and failure to comply with regulatory requirements is not an option for ABW.


To Come

We will be communicating our process & requirements for both Velocity & Expert in the coming weeks. This may change as technology adapts.


We will be announcing the Brokerage Compliance & FINTRAC Officer. This may change in the future.



We will be hosting a mandatory zoom call on Oct 1st at 1:30pm PST to discuss in further detail and answer any questions that you may have.


Thank you all for your time and understanding. We appreciate the relationship we hold with each and every one of you and will continue to stay ahead of the industry to ensure we are all compliant.