Canada’s AML/KYC Compliance: Rules, Regulations and Penalties

When talking about Canada’s AML and KYC requirements, most businesses are either overcomplicating or underestimating these regulations. 

If you’re not sure what’s required or how to implement them without disrupting your operations, this blog is for you. We’ll break down the key steps to compliance and show you how to streamline the process. 

Don’t risk penalties or damage to your reputation, read on to find out what you need to know.

Canada’s AML/KYC Laws and Regulations – Quick Rundown

Law / Regulation	Purpose	Who It Applies To	Key Requirements
PCMLTFA (Proceeds of Crime (Money Laundering) and Terrorist Financing Act)	Core AML law sets compliance and reporting rules	Banks, fintech, MSBs, casinos, real estate, securities, accountants, law firms (financial transactions)	KYC verification, suspicious transaction reporting, record-keeping
Criminal Code of Canada	Defines money laundering & terrorist financing as criminal offenses	Everyone (individuals & businesses)	Prohibits involvement in money laundering and requires businesses to prevent it.
FINTRAC Regulations	Specifies how reporting entities must comply with PCMLTFA	Banks, fintech, MSBs, casinos, real estate, securities, accountants	Customer due diligence (CDD), enhanced due diligence (EDD), record-keeping
Bank Act	Sets AML obligations for federally regulated financial institutions	Banks, credit unions, insurance companies	Requires banks to have AML programs, conduct risk assessments
Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR)	Detailed rules for implementing PCMLTFA	Financial institutions, MSBs, crypto exchanges, accountants, lawyers	Beneficial ownership rules, politically exposed persons (PEP) screening, transaction monitoring
Office of the Superintendent of Financial Institutions (OSFI) AML/ATF Guidelines	Compliance guidelines for financial institutions	Banks, insurance companies, trust companies	AML risk management, internal reporting obligations
Canada Business Corporations Act (CBCA) – Beneficial Ownership Rules	Increases transparency in company ownership	Corporations & businesses	Requires companies to disclose beneficial ownership to regulators

Overview of Canada’s AML and KYC Compliance

Canada’s AML and KYC laws are designed to stop money laundering, terrorist financing, and financial fraud. These regulations are enforced by various regulatory bodies, with FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) playing the lead role.

Other agencies like OSFI, RCMP, CRA, and CBSA also play roles in enforcement. The system follows a risk-based approach, meaning higher-risk customers face stricter checks. 

Companies must keep records, report large or suspicious transactions, and ensure transparency in ownership structures. Specific laws and regulations are coming up next.

Canada KYC and AML/ATF Requirements

Canada’s Anti-Money Laundering (AML) and Anti-Terrorist Financing (ATF) regulations are primarily governed by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated regulations.

 

Here’s a breakdown of the key regulations.

1. Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)

The PCMLTFA is the foundation of Canada’s AML/ATF framework. It mandates businesses to:

• Verify the identity of clients and beneficial owners when onboarding businesses.
• Report suspicious transactions, large cash transactions ($10,000+), and electronic funds transfers ($10,000+).
• Keep records of business relationships, third-party transactions, and high-risk activities.
• Implement AML/ATF compliance programs, including risk assessments and audits.

Failure to comply can result in heavy fines and reputational damage.

2. Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) Compliance

FINTRAC is Canada’s financial intelligence unit (FIU) that enforces AML/ATF rules. Businesses must:

• Submit reports on suspicious transactions, large cash transactions, and international money transfers.
• Conduct ongoing monitoring of business relationships to detect unusual activity.
• Ensure their compliance programs align with FINTRAC’s risk-based approach.

FINTRAC also conducts audits and issues penalties for non-compliance.

3. Corporate Transparency Act and Beneficial Ownership Registry

By 2025, federally incorporated companies must disclose beneficial ownership details in a publicly accessible registry. This enhances transparency and helps financial institutions verify corporate clients.

4. Politically Exposed Persons (PEP) and Sanctions Screening

Businesses must screen corporate clients and their UBOs against:

• Sanctions lists (e.g., Special Economic Measures Act).
• Terrorist financing watchlists.
• Foreign and domestic PEPs, including their family members and associates.

If a PEP or sanctioned individual is involved, enhanced due diligence and reporting measures apply.

5. Customer Due Diligence (CDD) and KYB Requirements

Canada’s rules require businesses to:

• Verify a company’s legal status and registration (e.g., via corporate registries).
• Identify and verify Ultimate Beneficial Owners (UBOs) who own 25% or more.
• Determine if the business is acting on behalf of a third party.
• Screen for Politically Exposed Persons (PEPs) and Heads of International Organizations (HIOs).

If a business structure is complex or ownership details are unclear, additional due diligence is required.

6. Ongoing Monitoring & Risk Assessment

Businesses must continuously monitor transactions to detect suspicious activities.

High-risk clients require periodic KYC updates and closer transaction reviews. Low-risk clients may have longer review cycles, but must still undergo periodic reassessment.

Any sudden change in transaction patterns, unusual international transfers, or other red flags must trigger further investigation and, if necessary, STR filings to FINTRAC.

7. Money Services Businesses (MSBs) Registration and Compliance

MSBs, including payment processors, foreign remittance providers, and crypto exchanges, must:

• Register with FINTRAC and undergo regular audits.
• Perform KYB checks on business customers and monitor high-risk transactions.
• Report large virtual currency transactions ($10,000+) to FINTRAC.

Unregistered MSBs operating in Canada can face shutdowns and legal penalties.

8. Sanctions and Terrorist Property Reporting

A new requirement under the Sanctions Reporting Framework mandates that businesses report:

• Any assets linked to sanctioned individuals or entities.
• Suspected terrorist property holdings.

This expands beyond traditional AML reporting to cover economic sanctions violations.

9. Third-Party Determination

When a customer acts on behalf of another party, businesses must determine and document who the actual controlling party is.

If a business client is owned or controlled by another entity or person, financial institutions must verify the beneficial owner and assess their risk level. This prevents individuals from using straw owners or shell companies to hide illicit activity.

Moreover, institutions must also record and retain documentation of the third party’s relationship to the business customer for regulatory audits.

Penalties for Non-Compliance in Canada

Violation	Penalty Type	Fine / Consequence
Failure to report suspicious transactions (STRs), large cash transactions, or electronic fund transfers	Administrative Monetary Penalty (AMP)	Fines vary based on severity, up to millions in some cases
Failure to implement an AML compliance program	AMP	Fines can range from thousands to millions, depending on deficiencies
Criminal offense – Summary Conviction	Criminal Charge	Fine up to $250,000 CAD and/or up to 2 years less a day in prison
Criminal offense – Indictment	Criminal Charge	Fine up to $500,000 CAD and/or up to 5 years in prison
Failure to verify customer identity (KYC violations)	AMP	Fines are issued based on the risk and severity of non-compliance

Source

Getting Started

By understanding and implementing the right AML and KYC practices, you’re already a step ahead in protecting your business. 

But to make this process even easier, integrate solutions like UBO (Ultimate Beneficial Owner) and KYB (Know Your Business) verification APIs to streamline your compliance efforts even more. 

These tools ensure that you’re not only meeting regulatory requirements but also safeguarding your business against risk. To see how Signzy’s APIs can help, book a demo – HERE.