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 get worse.
In a recent interview with Friedrich Klaus, co-founder of Illuminai Intelligence Corporation, I gained valuable insights into the evolving world of FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) compliance and the challenges faced by brokerages in Canada. Klaus shed light on the significant changes introduced in 2021, the common mistakes made by brokerages and what the future holds with compliance requirements.
The shift in FINTRAC compliance requirements
According to Klaus, the most notable change in FINTRAC compliance is the shift in responsibility from agents to managing brokers coupled with the new requirement of “ongoing monitoring”.
As of 2021, the managing broker and the business now bear the risk of substantial fines if they fail to comply with five major requirements of the updated Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA):
- Implementing a compliance program
- Reporting transactions (filing suspicious transaction reports to FINTRAC)
- Keeping records about high-risk clients/transactions
- Knowing your client/ongoing monitoring
- Applying ministerial directives
The ongoing monitoring requirement is particularly challenging without technology, with labour-intensive and cumbersome spreadsheets the only available resource available to brokerages.
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.
Common mistakes made by brokerages
Klaus pointed out that many brokerages make the mistake of assuming FINTRAC’s previous “soft touch” will continue. 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.”
Real estate, being a prime destination for laundered funds, means brokerages must adapt or change their business models to comply with the increasingly stringent regulations that will only become more challenging in the future.
Future compliance issues and requirements
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.
Improved cross-governmental information sharing and increased access to free governmental data will raise the expectations of compliance. Real estate professionals will need to actively detect fraud and adapt to the changing landscape of anti-money laundering regulations. Agents and brokerages will need to adopt new tools or be drowned in “labour cost or fines … Pick your poison,” Klaus explains.
Troublesome issues for brokerages
In a recent case, FINTRAC imposed a $132,000 penalty on Global West Realty Limited, underlining the intensified scrutiny on brokerages. The 2021 examination revealed non-compliance issues, including a lack of appointed compliance oversight, absence of written policies and neglect of ongoing compliance training.
In a recent speech at ACAMS, a global meeting for the anti-money laundering community, Sarah Paquet, CEO of FINTRAC, emphasized FINTRAC’s commitment to ensuring businesses meet obligations under the PCMLTFA. This case exemplifies a more assertive enforcement approach, using penalties to drive behavioural change.
Unclear legislation and guidance compound challenges for brokerages, notes Klaus. Some existing tools in the market, designed for agents, may lack a compliant “ongoing monitoring” solution, leaving brokerages susceptible to audits as FINTRAC assesses ongoing monitoring programs as part of their audits moving forward.
In 2022-2023, FINTRAC issued six notices of violation, totaling $1,113,569. With the real estate sector facing heightened scrutiny, brokerages must take proactive steps to navigate evolving compliance challenges and avoid substantial penalties.
Mitigating risk and starting the compliance journey
Given the significant fines, aggressive FINTRAC compliance enforcement and the political temperature to blame money laundering as a source of housing unaffordability, Klaus advises brokerages to start their compliance journey now.
What’s more, while technology is available, brokers are advised to truly understand what the technology offers and what it doesn’t. Klaus often encounters brokers who misunderstand the difference between Illuminai and what its 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. Rather, Illuminai actively assists real estate brokers in achieving compliance with almost all of the ongoing review aspects of the PCMLTFA. Iluminai provides a unique and specialized service, ensuring a seamless and efficient compliance experience for the real estate industry in Canada.
Klaus emphasizes the urgency for brokerages to take proactive steps toward 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. The time to act is now.
Natalka Falcomer is a lawyer, real estate broker and Certified Leasing Officer who started her real estate career in private equity. She created, hosted and co-produced a popular legal call-in show on Rogers TV and founded and recently sold Groundworks, a firm specializing in commercial leasing law. She is currently the Chief Real Estate Officer of Houseful.ca, leading the development and expansion of the company’s personalized home buying and selling experience for the Canadian market. She sits as an advisor on NAR REACH Canada and is the former multi-year board member of the Ontario Trillium Foundation.
Advanced sales pitch. The new owner of this newsletter has prioritized monetization over news in a lot of ways. For this reason I unsubscribed.
Once I realized they had something to sell, the fear & panic I was feeling after reading the headline dramatically subsided.
I agree!
Hi Greg,
I’m the new owner. I appreciate you still commenting and leaving your thoughts. As part of taking over and running REM, we’ve been working on finding the balance between sustainability of the business while continuing to deliver quality content.
The only way to keep sponsored content off the site would be to go to a paid subscription model which would mean gating all the content to only people who pay to subscribe. That’s something I have no intention of doing for editorial content (we do have some premium content options though that you have to subscribe to get)
The balance between content and the commercial side of the business we won’t always get completely right and we adjust based on feedback. We’ve had a few comments and people reach out about this article specifically.
This was not actually a paid placement, we do mark everything that has been paid for as sponsored. I do agree though, a few of the parts are too “salesy” for an editorial piece of content. It’s something we will review in a meeting coming up as a team and see how we can adjust going forward to do better.
Realtors have no business collecting Fintrac information. We are not agents or investigators for the government. This information, if it is collected at all, should be collected by the banks who actually have the means to track funds. It is absurd to think that the government believes that criminals do not lie and or forge documents. Collecting Fintrac information is beyond the scope of our jobs and expertise. As an industry, we really should try to change the requirements. Failing that, we should refuse to collect the information.
Exactly. Or pay us compensation for doing their jobs.
Compliance, compliance and more compliance. Be suspicious of everything and everyone. Report and report and report. In a mean time, we are better than competitors. Cute 😁😁😁
What Mr. Klaus is offering through his company is a basic KYC-search program, which scrubs the web and other media for hits on bad guys and others associated with those bad guys, including by blood and marriage. A handy tool but at best only one tool in a tool-box that requires so many other things to be compliant under the legislation, its regulations and FINTRAC’s guidance. To refer to Mr. Klaus as an expert in FINTRAC requirements is a stretch I believe. He had an idea, a good idea mind you, for a piece of helpful software but that software is only one piece in a brokers required tool kit.
Hi Chris,
Thanks so much for the comment. We actually provide a lot more than the basic KYC-Search. If you are familiar with the PCMLTFA, there are 5 main pillars, and we help brokerages with the most difficult of those pillars, including the records, report generation, report scoring, audit trail, STR filling and we do this through a customer onboarding process that uses the data from the forms.
I would be happy to address your concerns if you like. I am reachable on fk@ilumin.ai.
Looking forward to connecting.
Aren’t advertisements supposed to be presented as such? Not sure there was any actual news in this story. Please keep the the ads to the back pages please.
Hi Geordie,
I wrote this reply to another commenter and I think its relevant to your comment as well so I figured it would be easier to paste it here:
As part of taking over and running REM, we’ve been working on finding the balance between sustainability of the business while continuing to deliver quality content.
The only way to keep sponsored content off the site would be to go to a paid subscription model which would mean gating all the content to only people who pay to subscribe. That’s something I have no intention of doing for editorial content (we do have some premium content options though that you have to subscribe to get)
The balance between content and the commercial side of the business we won’t always get completely right and we adjust based on feedback. We’ve had a few comments and people reach out about this article specifically.
This was not actually a paid placement, we do mark everything that has been paid for as sponsored. I do agree though, a few of the parts are too “salesy” for an editorial piece of content. It’s something we will review in a meeting coming up as a team and see how we can adjust going forward to do better.
Does Natalka Falcomer do seminars on Fintrac