Preparing for the New Year: A Look Back at 2024’s AML Compliance Changes

Welcome to another episode of the Know Your Compliance podcast. And today is December 19, as we shoot this. This will be released on January 1, which is the perfect time to be doing a year and wrap up and a look forward for 2025 so I am excited to bring my co founder and CTO of really trusted back to the podcast for a second appearance. Daniel, welcome back to the show. Hey, it's good to be back. So you know, this is the time of year when we kind of look back and reflect on everything that's happened over the last 12 months, and then pause appreciate that, and then look forward to what to what 2025 holds, and I thought it'd be useful to have that conversation as part of our podcast, only to help frame two things. Frame mostly how quickly the sector has changed, in fact, over the last 12 months, which ties into kind of how I expect, and what you know, what I think is reasonable to expect 2025 to to be, which should be a bunch of hills and valleys that we can't possibly predict at this point in time. So with that as a like Prelude, point to me, if you wouldn't mind, like walk me through 2020 fours. Big changes from the AML, FINTRAC side of things, what did, what did you see in the world as as happening and in the lay of the land? You

know, I think the biggest change was when FINTRAC managed to successfully convey to the real estate industry that our old approach to risk assessment in that sector was not working.

That's an interesting way of phrasing it. I i remember that specific I, you know, I'd have to look at a calendar to make sure, but I think I know the exact date that that became crystallized. Do you remember that date? The exact date?

I remember the exact date, but I do remember it well. We ended up with a webinar with over 1000 registrants from people saying, what do we do now.

Yeah. So just to give you like to put the context behind this, january 18 of 2024 crea launched The Canadian Real Estate Association launched a new version of their identification record template form, and that's something that look crea has been publishing a an ID record as part of their forms, through the forms, through the form software for the industry for many years, this was a pretty wholesale change, and as you quite rightly say, the risk assessment was a sharp right turn from what they had previously been describing as a risk assessment you want to, like our listeners to this podcast will probably understand the nuance of that, but give people like the two minute overview of that, if you, if you could, yeah. So,

you know, I think the first thing to remind everybody of is that crea has been publishing these forms for years, and they do it with the intention of providing tools to help brokerages successfully implement the policies that they need to implement Absolutely. You know, the there's a lot of misconceptions about them, like, Oh, these forms have been approved by FINTRAC. No, they have not. Or, Oh, if I just fill out the form, then I have met obligations. No, absolutely not. And what happened when the new forms came out is people started looking at the risk assessment question, and they're like, this doesn't make any sense to me. And I met on multiple levels. It didn't make sense to them in the context of, like, some of the questions seem odd or impossible to answer, just like in day to day operational reality, but it was also odd in the sense that it all of a sudden didn't line up with their brokerages policies. And that's when there were questions. Yeah, there

was a ton of questions coming out of that. And, I mean, I think you've quite succinctly hit on something that I think, and I would suggest to you, continues to plague the industry, honestly, which is, there's actually just a lack of understanding. And, you know, actually, our listeners on this podcast are probably through this already, so they're going to think this is, this is this is a step backwards, or might be a little too basic, but, you know, within the real estate sector, there still is this perception that if I fill in the form, I'm good. As recently as yesterday, quite literally yesterday, I was on a call with a managing broker who said, Well, you know, as long as I'm ticking the right boxes here, I. I just don't see how I get in trouble with fin track. And that's the you know, that's what we're seeing. Still speaking of that webinar where about 750 people ended up showing up, that was the question that we were trying our darnedest to address in a in as way as we could, which is, look, crea has published a different way for you to assess the level of risk in the transaction that you're required to be doing. We've we for For context, really trusted had published a different approach to Korea's approach about three and a half, four years prior. Yeah, maybe three years prior, I don't know exactly. So we had already considered the risk assessment part of things, and had what, what we thought, and continue to think, honestly, is a really good answer to that question. And actually, if I could put a pin in that for a second as of the beginning of this week, it was proven to be an effective method, because our forms have now been through a fin track examination, our approach has been through a fin track examination, and the fin track examiner was quite happy with it. So, you know what we've always believed has held true to the point where people actually want it. But anyhow, my point on this is the nice thing about that, that change, that Korea pushed out, was that it caused brokerages everywhere to have to to possibly start to grapple with the question that we think they should have been grappling with for many years, which was, how are your agents determining the level of risk in the transaction that they're contemplating?

Well, and the great thing there was that it eliminated this long standing pushback that we would have true when we'd say to brokerages, hey, we have these forms that we think you might want to use. And they'd go, Yeah, but now I have to do all this extra work. Yeah, we said to them, No, you're not understanding. It's not that now you have to do extra work. It's that you're not currently doing work that you are required to do that you

should already be doing. Totally, totally, totally, okay. So I think you know that was, that was January. If we move forward, I think it was in February. I didn't have a chance to check my notes on this, but I think it was February. We saw fin track publish the Russia sanctions stuff. So that was a sector wide change. Well, actually, that was an AML sector wide change. Realistically, actually, I would say for the most part, that was kind of a blip. Not a whole lot on our side of things. Anyhow, not a lot had to change. We had started treating source of funds, or Russian source of funds, as a elevated risk approximately a year, maybe a year and a half before that. So from a operational point of view, nothing had to change. There was some policy work we had to do for our brokerages who engage us on the fin track Express side. But realistically, wasn't a substantial change. I think beyond that some I guess we did a quick training on it as well. But like, you know, effectively, that was pretty small blip. Is that fair to say? Yeah. I

mean, you know, it was in our universe, and we come back to this if a few times, like we live in the universe of brokerages that are staying on top of their compliance programs, fair, yeah, yeah. And you know that Russian transactions were one more step in our watch list screening process. But let's not forget that Global Affairs Canada is like still, to some extent, trying to figure out how to get people to actually use the sanctions listing.

Yes, well, that's, that's, that's a fair point. Fair call it. Okay, and this is you. You've said the word, let's go to it. That was the kind of the mid year. That was probably the biggest mid year change in the in the world, of in our world, the sanctions evasion stuff. So walk us through kind of what that is and what that looked like, if you could. Yeah.

I mean, one of the things that brokerages are expected of, not just brokerages, and we keep forgetting about our mortgage brokers, and there's all the other fin track.

Oh, let's take a step back on this. Sanctions isn't just an AML, our responsibility, let's, let's be very clear about that, actually,

yeah, exactly. And I mean, in fact, it's every Canadian, yeah. Most people don't realize this.

And before we go down this path, let's, let's do, define what this is, so that people Yeah, we're following the conversation.

So the concern, of course, after sanctions got imposed on Russia, is that the next thing Russia does with that is figure out, I. To get around those sanctions, because it's rather inconvenient when you're unable to trade. Yeah, so there's a requirement now to be in a position to detect situations where evasion is of the sanctions taking place, where, you know, maybe there's some kind of nominee, some kind of the person that you're doing business with is not actually who you think you're doing business with. And you know, there was always a requirement for people to figure out who beneficial owners were in transactions and all of that. But this is yet another reason and an example of a case where it becomes very important for people to have that understanding of beneficial ownership, because that's the only way that they can detect any attempts to evade the sanctions. Yeah, I

think, you know, I want to really, so just to really kind of get down to the brass tacks of it, global affairs can't, because I don't think we've defined it yet. Global authority Canada publishes a handful of lists. Forgive me, because I don't remember. I think it's five or six of them, but it's, it's well documented in our policy and procedure manuals. So I do pull that up in a fin track examination. In fact, I did the other day, but for the purposes of today's podcast, Canadians everywhere have an obligation, when working with somebody, to ensure that people who are on those sanctions they are not working with people who are on those sanctions lists. The big change in June was the obligation to prove and to be able to document what you had done to to meet that obligation, and by putting fin track in as a enforcement agency for global affairs Canada's lists, is probably the best way I can put it, they put some teeth to this. Global Affairs Canada, for a long time, has felt, probably quite rightly, that the sanctions lists are underutilized or or just ignored. So you know what was interesting about this one to me and, and I've, I've kind of hinted at it already, and I just want to get right out there and say it clearly is that this was not a new obligation. And I think, you know, I, I'm on a bunch of different Facebook groups and with, generally, with real estate folks, just based on my background, and there was many chats I saw about, how dare they make us enforcers of the law? How dare they continue to make us more and more like police officers? I'm just a real estate agent. Shouldn't have to do all this stuff. And on this one, I kind of had to chuckle, because this was not a new obligation. And the sad part was that people were so convinced that it was, that it highlights, for me that they were way offside of their legal obligations prior to and just to really be clear on it, that's a criminal code offense. When you work with somebody who's on a sanctions list, forget the sanction, forget the fin track, part of this whole case, thing, Criminal Code offense like that's just anyhow. So, and this was actually a really an interesting one to me, because we had, prior to the fin track public the the fin track publication on it, in fact, months before, had already solved, virtually solved this issue. Again, other than the the training our sector people side of things, we had already incorporated all the tools into the operational processes. Is how I would best phrase that, yeah,

yeah. Well, and you know, you touched on something else there that is also become really apparent. And again, it's this, like growing awareness, that conversation about, how dare they expect me to do all of these things? Often, the next thing they'll say is, you know, I'm not a trained law enforcement agent. I don't have any knowledge about how to do it, any of this stuff. And turns out one of the other obligations is that you have sufficient training.

Well, there is that as well, you know? Yeah. So let's, let's fast forward, in the interest of not lingering too long on any one topic. Let's fast forward to October, which was the other big change, and this is probably the biggest change on the fin track side of the world that we saw this year. Yeah, give me a definition what happened well,

so for our little part of the universe, it was entirely about mortgage brokers, although there were actually a few other sectors as well, you know, the armored car companies, but there are a whole other parts of the Canadian economy that the government has decided are now important stakeholders in the process of. Of Canadian society being able to detect and prevent money laundering, yeah, and I'm wording it that way because it's a slightly different framing than people normally go with.

I might tweak it just a little bit, yeah, which is the Canadian government has moved in this direction, partially, perhaps, you might say, and this might be, this might sound cynical, though it's not intended as such, because there's a mutual evaluation happening in 2025, of our AML, of the Canadian AML program, or of fin track to put a really pin, sharp pin on it.

And we don't really want that term snow washing to continue to become too popular, right? Like, yes, so.

And I guess I just wanted to, kind of, like, weave that in, because a it's part of 2025, and I want to come back to that in a second, but also to realize that, you know, this isn't, none of this is driven entirely by the government in power, or the, you know, bureaucratic overreach or regulatory creep, or any of these other things. And look, there might be some of that that exists, but I generally don't think that's the case here. It seems pretty apparent to me at least that there was a hole in our in our compliance posture as a country, sorry, with respect to anti money laundering compliance, yeah, yeah. So just to we haven't again, we've kind of gone down the path. We haven't defined mortgage entities are the are the ones that kind of we saw the most, the most noise on the most challenges, as with the most challenges, excuse me with and the most requirement for help out there, I think, is how I could best put that, just to, like kind of provide some insight. The cool thing about the mortgage sector is that it's actually very similar and closely tied to the real estate sector, and that's a sector we've spent all of our existence really effectively working in. So we were somewhat uniquely positioned to be able to offer offer a pretty easy I hope, and I think we are seeing evidence so that it is our solution to these new requirements that mortgage entities everywhere, everywhere across the country, were faced with. So just to put it in, like a really quick sentence, if you haven't heard, mortgage entities across Canada are now reporting entities and have all of the same obligations as every other reporting entity, from appointment of compliance officer straight on through to doing an effectiveness review of the Interact program you've you've put in place, and everything in between. And there's a lot in between, by the way, I just dot dot dotted the most important part, perhaps. But anyhow, that's where I think we've spent a lot of the fall, at least as a company, has been working through the education, training, operationalization, systematization of of providing compliance programs to a to a new sector, in this case, the mortgage sector. And I think what I would say is that our learnings have been that it is, it's it's very challenging, and it's challenging in the mortgage sector for the same reasons it's challenging in the real estate sector, which is by and large. These are small businesses with limited profits and therefore not a huge ability to invest in a in a in an anti money laundering compliance program, though having a new obligation to do so, whether they like it or not, is, is

the you know, I agree with you, and that's all true. But there's another aspect that is especially prevalent in the real estate industry that is also true in the mortgage industry, and that's the sales imperative. That's the industry structure.

Yeah, fair point, right? The prevalence

of independent contractors, the fact that whoever's bringing in the deal flow, and they can bring in that deal flow wherever they want. Yeah, there's real pushback to anything that is perceived as having the potential of getting in the way of doing business,

adding adding work. Yeah, person, and look, I've been a realtor for 15 years. I fully get maybe it's 14. I don't. Anyhow, I fully appreciate that your income as a mortgage person or real estate agent is based on getting this deal done, this and the next, as many as you can. And yet, there's this obligation now to to be doing the assessment of risk, monitoring of risk, and so on and so. On and so online. Let's be clear, there's other obligations. I'm just going to kind of gloss over the purposes of not doing a full training session.

You know, I want to go to a question that we heard in a fin track exam. That question was, have you filed any suspicious transaction reports? And the reason I want to bring up that question is because it was absolutely not a bad thing. When the answer was yes, it was a good thing.

Yeah, I think it's, you know, I'm glad you raised that point. I hadn't thought about that part of things. But one of the things we hear frequently when we're doing consults with brokerages, generally not brokerages after they've hired us, but prior to hiring us, is, oh no, no. We don't have any high risk clients. No, it's just not something we do. We only deal with people we know really, really well, and there's just so much of so much wrong in that statement. And like, look, that's a statement that I've heard countless times, but like, every cent, every part of that sentence, let's parse it for a second. We only deal with high risk clients. Well, first of all, that's probably because you've poorly defined your risk. Oh, sorry, yeah, so we only deal with low risk. Sorry, you're right. It's probably because you've poorly defined your risk in your in your documentation, because you should have some level of clients that are rising to a high that are being elevated to a high risk position. Hey.

Another question he had was, Do you have any high risk clients? Right?

Exactly. And then secondly, if just because they're high risk doesn't mean you're going to be filing str. And that's that's a common misconception that happens at that same juncture in time. It you know. And then the third part of that sentence to break out is we only deal with people we know. Well, guess what? People you know might also be high risk clients. So they're like, that whole sentence just falls apart on its face really quickly. And so I'm glad you mentioned it. And you're right. You've, drawn in, I think the last part of our 2024 look back that I really wanted to touch on, which, to me, was so for our company, it happened this week, and it was probably the best way I can put it. It's the culmination of what we've been working for for many years. In fact, was the opportunity to sit through and work with a real estate brokerage through a fin track examination, and you've pulled out something that I think was really helpful. What else did you hear during that FINTRAC examination that that is worth kind of sharing with with our audience, and that you think might be helpful for them to understand? I guess

you know the notion of controls. The reason we were there was in the context of a brokerage that had significant gaps in the past. And that's of course, why they started working with us, because they recognized, hey, like we need to get our house in order on this. And what FINTRAC is looking for is to make sure that you have controls in place and that for the risks that they've identified, and they've done a lot of work to kind of clarify what the controls need to be. You know, let's not forget, the legislation starts so pretty vague and broad. And that's intentional. That's because this is an ever evolving world. And, you know, there's a small number of things that we've pointed out that have changed in the last year. There's a whole bunch of other more minor nuances that have just kind of gotten rolled into our operations and procedures and whatnot, yeah, and FINTRAC absolutely expects you to put the work into staying on top of that, to looking at everything they're, publishing everything that's going on, and constantly adjusting your risk posture accordingly. So you know, having us in the room and saying, Hey, look, these are the things that we're doing to stay on top of that, was an important part of that conversation. And for most, maybe every single real estate brokerage, other I can think of, maybe one or two, but is basically impossible for people to do on

there? Yeah, no, I agree. And I think, you know, it's a conversation I had after with the compliance officer from that brokerage where she said, look like we're big enough we have the resources to do some of this ourselves, but having you in that room was still really important for us, because it's just too much for us. And this is a large enough brokerage that they've got two people in charge of their compliance program, effectively, for lack of a better way of describing it. And they still they very much. Saw, in fact, was very appreciative. Of the of us being in the room and helping them through that, you get into the truly small, the under 10, the 20s, the 30 agents, the 40 agents, anything under 200 I don't know. I actually don't know how a compliance officer could stay on top of all of the stuff, and that both the changes, but also the training piece for their people, the the ongoing monitoring of it like they there is effectively almost a full time job if you really are doing this properly, almost regardless of your size, I guess is the best way I can put it. And that just doesn't scale well without assistance. And that's kind of what I think, what I would suggest to folks that, and where we've found this this niche, is that we're able to provide scaled support for the size of brokerage, almost regardless of the size of brokerage, I guess is, is what I'm trying to say so

well. And you know, we're also in a position because of that expertise. To you touched on overreach before. And you know you see this issue in any kind of auditing, whether it's fin track, whether it's bcfsa, whatever we're talking about, but occasionally you'll get an auditor that has a particular interpretation of things that might go directly against published guidance, or like there's various versions of that story, yeah. And so having the ability to confidently push back appropriately, respectfully, yeah, yeah, no, that's a good point.

That's a that sounds really a super valuable point. And it and it was, it was true on Monday as well. Okay, so let's, I think we've done a pretty deep dive into 2024 and I think that was most of what I wanted to talk about today. I just want to turn quickly our attention to what's next. What's 2025 look like? And I think I'm going to summarize it with kind of the following thing, if you had asked me that question, December 19 of 2023 I could not have predicted almost all of the things we've talked about today. The only one I could have predicted because we knew it was coming was the mortgage or the expansion of intrac regulatory scope around the mortgage entities and armored cars and all the rest. Everything else came as I don't want to say a surprise, because that makes it sound like we just weren't expecting it, but we could not have told you when or what it would have been, other than to say things will change. So I think certainly 2025 it is fair to say things will change.

Preparedness meets opportunity. And you know, our opportunity is about making people's lives better and easier and helping effective compliance programs continue to be in place as the world changes. And the world really changed a lot this year, and it was fortunate for us. It was in the way that we've been preparing

for the last six plus years. Yeah, yeah. I say I would add,

just because it ties into where I think we're gonna see some, some sector stuff, the fatfa mutual evaluation is 2025 and look, fintracs already started to take a risk based approach to doing that. I think would be the best way I can put that. We saw them publish. There was the legal professionals update they published a couple months back. Now, where best as I can tell the the reason, I mean, look there, there was some good stuff in there from an indicators of risk and all the rest. But I think it was a an attempt at FINTRAC to pre deal with the a risk that they know exists that they have not been able to solve, which is that legal professionals are not captured by as a reporting entity, and I'm quite confident that we'll see that called out in the FATF mutual evaluation. And by publishing the circular on it, it gives them a bit of well, we are aware of the risk. We have controlled it as best as we can, because, you know, FINTRAC operates in a risk based approach as well. And so I suspect the mutual evaluation will call that out. I think it'd be hard pressed to not see them call that out. They did last time, too. And I think this was amongst other I think there was great value in the information published, but I think it also gives them an answer to that question. So I think I'll be looking for and I guess where I'm going. With that is I'll be looking for FINTRAC to do similar things towards risks that they either know exists or can easily see exist. And so we're seeing a focus. I couldn't find the stat, but I know that they are focused on doing examinations within the real estate and MSB sectors is where they see a lot of the risk in the in the Canadian landscape. And so most of their examinations, I think it was, ended up being, 50% of their examinations were going to be within those two reporting sectors, was the stat I heard. And I'm making up the stat, but I think it's something like that. I

know they have a very aggressive targets in terms of how many people they intend to audit, it is considerably more likely than it used to be. Yeah, yeah. Well, and

you know, they've also developed new tools to do that. They don't that there. Those aren't all just fin track examinations in office that take multiple days. They've got these ecars that we've seen a handful of our brokerages fill out and complete and work through. They've got a number of other tools at their disposal now so that they can do a quicker overview of the landscape, and then they can do again, risk based approach. They can do a deeper dive on the ones where they're they're most concerned after some sort of initial screening to know which, which is a, probably a really useful thing. I think, yeah, a risk based approach.

Imagine that. Imagine that. Yeah, you know, you touched on the lawyer thing. And we'll see. I think this is fairly slow moving. You know, there's all the Charter rights issues that come around lawyers, and that's that's why we're in this weird situation that we're in where there they appear to be this big gap in our regulatory regime, but what we are seeing as a consequence of that is more requirements on all the other sectors that are part of the regime. And what I mean by that is, you know, we've had brokerages that have said things to us like, oh, well, it came from a lawyer. It must be good. And we'll see what happens with that. I think that's an evolving thing, but I I would say that if you look at our risk assessment process, for example, you know, looking at the transaction and asking if there are steps, if there are intermediaries that could be obscuring the source of funds, and a lawyer might be one of them, that's a risk that other sectors are expected to be dealing with. So,

yeah, absolutely, yeah, no,

that's a good point. Okay, well, so I think if I were to summarize my look forward for 2025 expect change, expect more things to continue to change, and expect that you, as a compliance officer at a at a brokerage, anywhere mortgage or real estate or any other sector, for that matter, have an obligation to stay on top of it and to to turn the ship in such a way that you're managing the risks that are newly identified And or managing the direction that might you know that might give people different insights into where you might find risk, in fact. So yeah, all right. Well, Daniel, thanks very much for the chat. I will let you get back to the to the beautiful snow covered landscape there, which is just perfect for the season to to all of our listeners. Thank you so much for tuning in to another episode. I hope you've enjoyed this, this look back and the thoughts that we shared with around the challenges within the sector. Have a wonderful happy holidays. I hope you've had actually, by the time this is released, I hope you've had a happy a wonderful happy holidays. And we look forward to connecting with you in 2025 for all of your anti money laundering compliance needs. Have a wonderful, uh, Happy New Year.

And you know what? The first episode of the podcast we focused on gratitude. Let's add a little bit of gratitude to this one as well. You know I, I'm, I'm grateful for the amazing 2024 we had, and I know 2025 is going to be at least as exciting. I

am truly grateful, and I kind of didn't say it eloquently enough, I am truly grateful for the opportunity to serve in the sectors we do. I am the amount of energy and and work that the people who were engaged in engaged with are putting into their compliance programs and are wanting to put into their compliance programs and are genuinely wanting to do it properly. I'm always blown away by that, and I'm very thankful for the opportunity to help them. So thank you to you our listeners, and to those who have engaged us. Have a wonderful day.