Brokers need to be aware of the biggest FINTRAC mistakes: Expert insights

As a broker, I share the frustration with many of you regarding the myriad of compliance requirements placed upon brokers, managers and real estate agents — from how to record our deals to finding out if one of my real estate agent’s clients is a cousin of someone who is a politician somewhere in the world. And this year it will be worse. 

In a recent conversation with Friedrich Klaus, cofounder of Illuminai Intelligence Corporation I gained valuable insight into the changing world of FINTRAC compliance (Financial Transactions and Reports Analysis Centre of Canada), and the challenges facing brokerages in Canada. Klaus shed some light on the changes coming in 2021 and the mistakes that brokerages tend to make. He also explained what the future holds for compliance requirements.

The new FINTRAC compliance requirements

According to Klaus the most notable changes in FINTRAC complianceThe new requirement for managing brokers is a result of the shift from agents to managing broker. “ongoing monitoring”.

The managing broker and business will be fined if they do not comply with the five major requirements of PCMLTFA:

• Implementing a Compliance Program
• Reporting transactions
• Keeping track of high-risk clients/transactions
• Know your client/ongoing Monitoring
• Application of ministerial directives

Spreadsheets are the only resource available for brokers to monitor their ongoing performance.

Klaus emphasized that Iluminai’s studies estimate a staggering 99.5 per cent of Canadian brokerages are almost totally non-compliant with the 2021 update to the PCMLTFA when it comes to ongoing monitoring. “There is no other way to comply, without the benefit of my platform, then (with) a spreadsheet a mile long and a mile wide, with a full-time employee doing 45 minutes to one hour of research per customer,” Klaus says.

Brokers make common mistakes

Klaus pointed out that many brokerages make the mistake of assuming FINTRAC’s previous “soft touch”He says, “He continues.” He says. “Canada’s international reputation as a haven of weak enforcement of AML laws has forced regulatory bodies to take action. Unfortunately, a lack of financial resources available to enforcement agencies and regulators because of a decade of underfunding and broken promises by the Liberal Party of Canada means that the burden of enforcement falls upon small businesses.”

Brokerages must adapt their business models or change them to comply with increasingly strict regulations.

Future compliance issues

Looking ahead, Klaus predicts that the relationship between FINTRAC and the real estate sector will mirror FINTRAC’s relationship with the banks, requiring accelerated and real-time suspicious transaction reporting, and heightened transactional scrutiny by brokerages. 

The expectations of compliance will increase as a result. Real estate professionals must adapt to changing anti-money laundering regulations and actively detect fraud. Agents and brokerages must adopt new tools to avoid drowning in paperwork. “labour cost or fines … Pick your poison,” Klaus explains.

Brokerage firms face a number of problems

FINTRAC recently imposed a $132,000 fine on Global West Realty Limited. This case highlights the increased scrutiny of brokerages. The 2021 examination revealed issues with non-compliance, including a lack in appointed compliance oversight, absences of written policies, and neglect of ongoing training.

In a recent talk at ACAMS (a global meeting of the anti money laundering community), Sarah Paquet, CEO of FINTRAC, emphasized FINTRAC’s commitment to ensuring businesses meet obligations under the PCMLTFA. This case illustrates a more assertive approach to enforcement, using penalties as a tool to change behaviour.

Klaus notes that unclear legislation and guidance can be a challenge for brokerages. Some tools on the market designed for agents may not be compliant “ongoing monitoring”FINTRAC’s audits will include an assessment of ongoing monitoring programs.

FINTRAC sent six notices of violations in 2022-2023. The total amount was $1,113.569. In a real estate market that is under increased scrutiny, brokerages need to take proactive measures to avoid heavy penalties and stay compliant.

Mitigating risks and starting the compliance journey

Klaus advises brokerages that they should start their compliance journey because of the high fines, aggressive FINTRAC enforcement, and the political climate to blame money laundering for housing inaffordability. Now.

What’s more, while technology is available, brokers are advised to truly understand what the technology offers and what it doesn’t. Klaus is often confronted by brokers who do not understand the difference between Illuminai’s technology and what its products are. Competitors offer: “Rival platforms (to Illuminai) are akin to going to a restaurant where you receive a bill at the end, but you still have to handle the entire cooking process, serve the meal and clean up afterward.”

In contrast, Iluminai’s platform goes beyond just filling out the necessary forms — which is what Illuminai’s competitors do. Illuminai helps real estate agents to comply with the PCMLTFA’s ongoing review requirements. Iluminai offers a specialized and unique service that ensures a seamless and efficient experience for the Canadian real estate industry.

Klaus stresses the need for brokers to be proactive Steps towards compliance. Whether through Iluminai’s platform or other means, adapting to the changing regulatory landscape is crucial for the real estate industry’s role in the anti-money laundering world. Now is the time to act.