Nathan Kanter: Hi, I'm Nathan Kanter, and welcome to this episode of the Blakes Sound Business podcast.
In today's episode, we're diving into important developments in Canada's anti-money laundering regime with a spotlight on real estate and mortgage lending. We'll explore British Columbia's introduction of Bill 29 and the federal expansion of Canada's AML rules to cover a broader range of real estate participants, including lenders, brokers and administrators, and what these actors need to know about the new obligations, enforcement risks and compliance strategies.
Joining us today are Blakes Partners Greg Umbach from our Commercial Real Estate group and Jacqueline Shinfield from our Financial Services group. Let's get started.
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Nathan: Greg, I understand British Columbia introduced Bill 29, also known as the Mortgage Services Act, to monitor and regulate money services businesses. What can you tell us about the bill and its goal for combating money laundering?
Greg Umbach: The bill was introduced about a year ago now, and it's meant to update and replace the existing Mortgage Brokers Act in British Columbia. The Mortgage Brokers Act is very, very old, and this renewed act was a recommendation of the Cullen Commission, which occurred in 2022, and was meant by the provincial government to address concerns about money laundering that had the effect of distorting British Columbia's economy and especially driving up housing prices.
The Cullen Commission report focused a lot on real estate trading, and one of the major issues that it considered was private lending and the potential for abuse there and money laundering. The main thrust of the report was to recommend enactment of a regime for registration and oversight of private mortgage lending. The new Act was meant to close some loopholes that exist under the current Act for lenders that don't appear to be carrying on business or doing multiple transactions. And so, the new Act sets up this regime of registration for mortgage lenders, anyone who's carrying out mortgage services, which includes arranging mortgages or taking mortgages, even if it's in your own name.
The new act will come into force October 2026, and the B.C. Financial Services Authority (FSA), who will administer the act, has started to release rules and a transition guide. That guidance deals with mortgage brokers and has not dealt with non-Canadian lenders, such as foreign banks or institutions. The rules regarding licensing categories that had been released do not mention a process for licensing for lenders, although the act does contemplate a licensing category for mortgage lenders. We understand that the B.C. FSA is working on rules for lenders, and we will see more relevant rules for those lenders’ licensing procedures in the lead-up to October 2026.
Nathan: How will the bill impact non-Canadian mortgage lenders, and what challenges might they face under the new regulatory regime?
Greg: The main challenge I see in this Act is that it sets up this registration system for lenders that casts a very broad net. There are exemptions for banks and insurance companies and some institutions. However, the definitions for those won't include some entities that might think that they should be included in the exemption. For example, foreign banks that don't fit into the definition of bank under the legislation — the definition is limited to banks that are regulated or under the jurisdiction of the Canadian Federal Bank Act. Some foreign banks are under that jurisdiction, some aren't, and even banks that have registered under the Bank Act in Canada, they don't always use the entity that they've registered in Canada. So sometimes they will do a one-off mortgage transaction in Canada, in British Columbia, in which they use their U.S. home bank as the lender. And in that case, under the current formulation of the definition in this new act, that lender would have to become registered as a lender in the new regime in B.C.
The concern I see for that is, one, the foreign bank or foreign lender may only be doing a one-off in British Columbia. There may be no other intention of doing other loans here secured over real estate. And so, they've got to go through the whole registration process for that one loan. The other piece is, again, as I mentioned, we don't know what the rules are for registration yet. We don't know what the process is going to be. We don't know what requirements are going to be. We think they will mirror or be patterned after what exists for mortgage brokers, and so there's educational requirements, there's corporate disclosure requirements, those kinds of things. But again, we don't know exactly how that'll shake out in terms of what the Financial Services Authority will require. So that's a concern that I see. Since the rules are uncertain at this point, we don't know how onerous the registration will be.
Nathan: How should lenders prepare for the upcoming licensing rules under Bill 29?
Greg: Since the rules haven't been developed yet and it's not clear what lenders will have to do to become registered or if they'll be caught, there's a few things for them to think about ahead of time. One thing we have told foreign lenders for some time, even under our current legislation, is that they should consider, if they're doing one-offs or not doing multiple mortgage lending in British Columbia, that they should consider an authorized collateral agent in B.C. to hold the mortgage, either one that is registered under the current Act or that will be exempt from registration. So that's one thing to consider for the future. Much of the current Act's purposes are related to information disclosure to borrowers, and we expect that that will continue in the new Act for lenders to make disclosure about the loans.
So, lenders should ensure that they have standard disclosure material, which most lenders do have, but they should make sure that it's useful for them and that they can easily adapt those to loans in British Columbia. We don't know what the required disclosure will look like yet. Again, those will come with the rules.
And I guess the last thing I would say is to stay in touch with us and similar organizations so that we can keep them updated on when these rules might come out and give them more information.
Nathan: Jackie, Canada's AML regime now targets a much wider demographic. Which actors of the real estate industry now have to comply with its rules?
Jacqueline D. Shinfield: Yeah, so that's a great question. So, until October of 2024, you had, you know, banks and credit unions and financial institutions and insurance companies that basically provided mortgages and were already subject to the anti-money laundering regime, which is the Proceeds of Crime (Money Laundering) and Terrorist Financing Act under the regime as it was currently drafted. And that also included real estate agents and developers. But as of October 2024, that regime has been expanded, and it's kind of going to dovetail a little off of what Greg said.
So now the regime has been expanded as a result of the Cullen Commission findings to include mortgage brokers, mortgage administrators and mortgage lenders. And what's critical is that the definition of a mortgage broker under the legislation is a person that's authorized under provincial legislation to act as an intermediary between a lender and borrower. So, the issue is, are you going to be authorized under the provincial legislation and be required to register under the B.C. legislation? And if you are, it's going to trigger requirements under the AML regime. So, they actually dovetail into each other.
So, in prior to October, if you were making mortgage loans and you weren't otherwise regulated as a bank or credit union or as a financial institution, you were not subject to this regime. So that has now changed. So, it's a really broad scope of, you know, everyone involved in the real estate industry. There's also a new provision that applies to real estate brokers that are acting for someone who's unrepresented. If there's an unrepresented party in a transaction, there's KYC obligations on those. So, it's a very broad swath now, and our real estate industry is pretty highly covered.
Nathan: What are the new requirements for those now included in the scope of the law, and what happens if they don't comply?
Jacqueline: So, the requirements are like implementing a full “know your client and compliant” program under the legislation, and that is a big, heavy lift. So, the first thing is you have to do a risk assessment. So, you have to risk assess your business, risk assess clients, look at the products you offer — so, in this case, it would be mortgage lending — look at the jurisdiction you offer them in. And so that's not just British Columbia.
The requirement is actually to drill down, like, where in British Columbia? Is there a high-crime area? Is it a place that's more susceptible to being used for money laundering? And do a risk assessment on the products you offer, where you offer them, who your clients are, other relevant factors. How do you offer your products? Do you meet people face-to-face? Do you do everything online? And come up with an assessment of risk — has your business been used to launder funds? And then put in mitigating controls.
Step two is you need to have a compliance program where you comply with all the requirements of the law. That includes knowing your client, identifying your client, understanding your client's business, understanding the transactions that they're entering into and determining whether that's realistic for them, monitoring that customer's behaviour with controls, is what they're engaging in and keeping with what you know about them. And if you think that the client is low risk from a money laundering perspective, on a periodic basis you have to reevaluate that and make sure that it's still accurate. If you're dealing with corporate clients, you have to determine who the beneficial owners are. There is legislation under B.C. dealing with real estate and beneficial ownership registries, but it goes a little bit deeper. You need to understand the complete control structure of your client. You need to determine if your client's politically exposed. You have to train your team to understand money laundering, to understand terrorist financing, to look for transactions that are suspicious and to actually file suspicious transaction reports with the government. You have to, every two years, do an assessment of your program — make sure it still works, make sure it’s still effective. So, it is a really, really heavy lift. It's not kind of a five-minute job. It's integrating that and integrating a compliance culture into your business of “this is what you need to do when you onboard clients”. So that's significant.
In terms of what the penalties are for not complying, well that's a really great question. Because the Strong Borders Act has recently been amended to amend the AML legislation. Most penalties, there are criminal penalties, but in the normal course, most penalties are carried out by way of administrative and monetary penalties. And those penalties can range anywhere, literally, from C$1 to C$500,000. So, if you have a client that's involved in suspicious activity or suspicious behaviour and you don't file a report, that is the maximum fine of up to C$500,000, and that's how the legislation's been drafted. But what I'm talking about is the Strong Borders Act, one of the significant things that the Strong Borders Act did, and that's Bill C-2, which is not yet in force; it actually takes those penalties and multiplies them by 40 times. So now instead of the penalties being from C$1 to C$500,000, a minor penalty is C$40,000 and a very serious penalty is up to C$20-million. So, this is really significant and something that has to be taken seriously by entities that are subject to this regime.
Nathan: I imagine this is a lot to tackle for newly targeted businesses. What would your next steps be as a lender, administrator or broker?
Jacqueline: I think you have to start by, first of all, acknowledging that you're subject to this regime, and then you've got to hire a Chief Anti-Money Laundering Officer or a Chief Compliance Officer to run this program. You have to draft a risk assessment, you have to draft AML policies and you have to train your staff. That's critical. You have to make sure that you understand what's required when you onboard a client to provide mortgage services, how you verify their identity, what information you need to keep, what records you need to keep. So, you need to call an advisor, a trusted legal advisor, to help you work through these because noncompliance is pretty significant.
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Nathan: Greg and Jacqueline, thank you for sharing your insights with us today on this evolving landscape.
Listeners, for more information on this topic and our podcast, please visit blakes.com.
Until next time, take care.
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