April 1, 2024 marked a significant shift in how the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) funds its compliance program. On this date, the funding model transitioned from taxpayer support to a system where reporting entities subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations directly fund the program’s annual costs.
This transformative change transfers the financial responsibility for FINTRAC’s compliance operations from Canadian taxpayers to the businesses and individuals that operate within sectors vulnerable to money laundering and terrorist financing activities. The new funding model aligns with international practices where regulated entities contribute to the costs of their oversight.
For businesses subject to the PCMLTFA—including financial institutions, money services businesses, real estate professionals, and others—this change introduces a new financial obligation that must be incorporated into compliance budgets. Understanding the structure, calculation methodology, and payment processes of this funding model is now essential for compliance officers and financial planning teams across thousands of Canadian businesses.
Assessment of Expenses Funding Model
Core Principles and Mechanisms
FINTRAC’s assessment of expenses funding model operates on several foundational principles designed to ensure fairness, transparency, and proportionality:
- Cost Recovery Focus: The model aims to recover only the actual costs of FINTRAC’s compliance program, rather than generating excess revenue.
- Risk-Based Approach: Charges reflect the relative risk of money laundering and terrorist financing within different sectors and the corresponding regulatory burden.
- Proportionality: Larger entities with more complex operations that require more extensive supervision bear a greater portion of the costs.
- Transparency: FINTRAC publishes detailed information about program costs, allocation methodologies, and projected expenses annually.
The mechanism operates by determining the total annual cost of FINTRAC’s compliance program, then allocating these costs across different types of reporting entities using four key components:
- Type of reporting entity: Different formulas apply to banks, trust and loan companies, life insurance companies, and other reporting entities.
- Base amount: For federally regulated entities, a base amount is determined by the value of their Canadian assets at the end of their financial year.
- Portion of annual compliance program cost: Known as the “remaining compliance cost,” this is calculated by subtracting the sum of all base amounts from the total annual cost of FINTRAC’s compliance program.
- Annual volume of threshold transaction reports: The number of threshold transaction reports (reports of transactions of $10,000 CAD or more) submitted by the entity during the fiscal year.
Distribution of Costs
The total compliance program costs are distributed across different types of reporting entities using a multi-factor formula that considers:
- The size of the reporting entity
- The complexity of its operations
- The volume of reports submitted to FINTRAC
- The sector’s overall risk profile
- The level of supervisory attention required
Based on available information, the total annual compliance program costs for FINTRAC are approximately $70 million, which are now recovered directly from reporting entities rather than through government appropriations.
Legislative and Regulatory Changes
Amendments to the PCMLTFA
The legal foundation for the new funding model was established through amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. According to the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations (SOR/2023-195), these regulations were made under paragraphs 73(1)(k.1) and (l) of the PCMLTFA.
Section 170 of the Budget Implementation Act, 2021, No. 1 introduced the necessary legislative framework enabling FINTRAC to:
- Charge reporting entities for the costs of its compliance program
- Establish calculation methods for these charges
- Collect the amounts owed
- Make assessments and interim assessments in writing
- Prescribe specific entities subject to these charges
The regulations specifically state that expenses incurred by the Centre in relation to ensuring compliance with Parts 1 and 1.1 of the Act and in relation to the Centre’s activities under sections 51.1 to 51.3 of the Act are prescribed expenses for the purpose of subsection 51.1(1) of the Act.
Key Regulatory Changes
The primary regulatory instrument implementing the funding model is the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations (SOR/2023-195), registered on September 26, 2023. These regulations:
- Define key terms, including “specified report” which means reports made to FINTRAC under the PCMLTF Regulations containing information set out in Schedules 1 to 4 and 6.
- Prescribe which expenses incurred by FINTRAC are covered by the funding model (specifically, expenses related to ensuring compliance with Parts 1 and 1.1 of the Act and activities under sections 51.1 to 51.3).
- Specify the entities subject to charges:
- Banks and authorized foreign banks under the Bank Act
- Life companies or foreign life companies under the Insurance Companies Act
- Companies under the Trust and Loan Companies Act
- Any other entity that made 500 or more specified reports during the fiscal year
- Establish detailed formulas for calculating charges for different types of entities.
- Determine how asset values of subsidiaries are treated for calculation purposes.
Implementation Timeline
Based on the official documentation, the implementation of the assessment of expenses funding model followed these key milestones:
- 2021: Legislative framework established through the Budget Implementation Act, 2021, No. 1 (specifically section 170)
- September 26, 2023: Registration of the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations (SOR/2023-195)
- September 25, 2023: Approval by the Governor General in Council on the recommendation of the Minister of Finance
- October 12, 2023: Addition of information about charging reporting entities for FINTRAC’s compliance program to FINTRAC’s website
- April 1, 2024: Official implementation of the new funding structure, shifting from taxpayer funding to reporting entity funding
- April 1, 2024: Base amounts for the 2024-2025 fiscal year take effect
- Annually thereafter: Annual adjustments to base amounts based on the Consumer Price Index
Development and Administration of the Funding Model
Guiding Principles
The development of the funding model was guided by several core principles:
- Fairness: Ensuring that charges reflect the relative benefits received and costs imposed by different entities
- Efficiency: Minimizing administrative burden while accurately capturing necessary information
- Adaptability: Creating a model flexible enough to accommodate changes in the regulated sectors
- Accessibility: Designing a system that is understandable and predictable for reporting entities
- Consultation: Incorporating feedback from industry stakeholders during development
These principles informed every aspect of the model’s design, from the selection of factors to the calculation methodologies and reporting requirements.
Annual Meeting on FINTRAC’s Compliance Program
FINTRAC has established an annual consultation process to ensure transparency and ongoing improvement of the funding model. Each fiscal year, FINTRAC conducts a public meeting where:
- Details of the previous year’s compliance program costs are presented
- Projected costs for the upcoming year are outlined
- Changes to allocation methodologies are explained
- Industry representatives can provide feedback
- Questions about the funding model are addressed
This annual meeting typically occurs in the last quarter of the fiscal year (January-March) and includes representatives from all major sectors subject to FINTRAC oversight.
Annual Reporting Requirement
To facilitate accurate calculation of charges, reporting entities must now submit additional information to FINTRAC annually, including:
- Financial data (such as total assets or revenue)
- Operational statistics (number of locations, employees, etc.)
- Transaction volumes and types
- Client demographic information
This information must be submitted through FINTRAC’s secure online portal by February 1 each year to enable timely calculation of charges for the upcoming fiscal year.
Evaluation and Enhancement
FINTRAC has committed to ongoing evaluation and enhancement of the funding model through:
- Annual reviews of the model’s effectiveness and fairness
- Regular stakeholder consultations to identify improvements
- Periodic independent assessments of the methodology
- Adjustments to reflect changing industry structures and regulatory priorities
The first comprehensive evaluation of the model is scheduled for 2026, following two complete cycles of implementation.
Reporting Entities Subject to Charges
Comprehensive List of Business Types
The following categories of reporting entities are subject to charges under the new funding model:
- Financial Entities: Banks, credit unions, caisses populaires, trust companies, and loan companies
- Life Insurance Companies, Brokers, and Agents: When engaged in certain activities such as loans or receiving funds
- Securities Dealers: Investment dealers, portfolio managers, and other securities firms
- Money Services Businesses (MSBs): Including domestic and foreign MSBs, and virtual currency service providers
- Casinos: Both land-based and online gambling operations
- Real Estate Brokers, Sales Representatives, and Developers
- Dealers in Precious Metals and Precious Stones
- Accountants and Accounting Firms: When engaged in specific financial activities
- British Columbia Notaries
- Real Estate Developers
- Mortgage Lenders (newly regulated as of October 2024)
Exemptions and Special Considerations
Based on the official FINTRAC regulations, several important exemptions and special considerations exist:
- Reporting Volume Threshold: Reporting entities other than banks that submit fewer than 500 threshold transaction reports in a fiscal year are either exempt from proportional charges (in the case of trust and loan companies and life insurance companies) or exempt from charges entirely (for other reporting entities).
- Subsidiary Considerations: The regulations specifically address how to handle parent companies and their subsidiaries. If a parent company reports consolidated Canadian assets that include its subsidiary’s assets, the parent company’s base amount is determined by excluding the value of the subsidiary’s reported assets. The subsidiary’s base amount is then determined based on its own reported value of Canadian assets.
- Asset Valuation: For calculation purposes, if the value of an entity’s assets in Canada is less than 0, the value is deemed to be nil.
- Foreign Assets: Assets held outside of Canada (foreign assets) are not a determining factor for the base amount calculation.
Incorporation of New Businesses
New businesses become subject to the funding model once they register with FINTRAC or begin operating in a regulated sector. The process includes:
- Notification to FINTRAC of commencement of regulated activities
- Initial reporting of business information through a special onboarding form
- Pro-rated charges for the first partial year of operation
- Full integration into the standard calculation methodology in subsequent years
Components of the Method for Charging Reporting Entities
Calculation Formulas
According to the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations (SOR/2023-195), the formulas for calculating charges vary by entity type:
For Federally Regulated Banks:
A + [B × (C ÷ D) × (E ÷ F)] = G
Where:
- A: Base amount determined by the value of Canadian assets
- B: Remaining compliance cost (sum of all base amounts subtracted from the annual cost of FINTRAC’s compliance program)
- C: Sum of threshold transaction reports submitted by banks during the fiscal year
- D: Sum of threshold transaction reports submitted to FINTRAC during the fiscal year
- E: Value of Canadian assets held by the bank at the end of its financial year
- F: Total value of Canadian assets held by all banks at the end of the fiscal year
- G: Bank’s final charge
For Trust and Loan Companies and Life Insurance Companies (500+ reports):
A + [B × (H ÷ D) × (I ÷ J)] = K
Where:
- A: Base amount determined by the value of Canadian assets
- B: Remaining compliance cost
- H: Sum of threshold transaction reports submitted by reporting entities other than banks
- D: Sum of threshold transaction reports submitted to FINTRAC
- I: Number of threshold transaction reports submitted by the entity
- J: Sum of threshold transaction reports submitted by reporting entities other than banks that submitted 500+ reports
- K: Final charge
For Other Reporting Entities (500+ reports):
B × (H ÷ D) × (I ÷ J) = L
Where:
- B, H, D, I, and J are as defined above
- L: Final charge
Influencing Factors
According to the official FINTRAC documentation, several key factors influence the final charge amount:
- Value of Canadian Assets: For federally regulated banks, trust and loan companies, and life insurance companies, the value of their Canadian assets at the end of their financial year directly determines their base amount according to a tiered structure.
- Volume of Threshold Transaction Reports: The number of threshold transaction reports (including casino disbursements, electronic funds transfers, large cash transactions, and large virtual currency transactions) submitted during the fiscal year significantly impacts the calculation.
- 500-Report Threshold: For entities other than banks, submitting fewer than 500 threshold transaction reports means they either pay only the base amount (for trust and loan companies and life insurance companies) or are not subject to charges at all (for other reporting entities).
- Market Share and Size: The banking sector, which comprises larger, more established entities and submits approximately 90% of the annual volume of threshold transaction reports, pays a proportionate amount regardless of individual reporting volumes.
- Annual Adjustments: Base amounts are adjusted annually by the percentage change in the April All-items Consumer Price Index for Canada to keep pace with inflation.
Estimating Potential Charges
Reporting entities can estimate their potential charges using the following approach:
- Identify their sector-specific base fee
- Determine their size classification within the sector
- Calculate their approximate reporting volume factor
- Apply the published formula for their specific sector
- Adjust for any special factors applicable to their situation
FINTRAC provides an online calculator tool that allows entities to input their specific metrics and receive an estimate of their annual charges.
Determination of Charges by Type of Reporting Entity
Sector-Specific Approaches
Different approaches are used for various sectors:
Financial Institutions
Financial institutions are charged based on their total assets, with a tiered structure that includes:
- Tier 1: Assets over $100 billion
- Tier 2: Assets between $20-100 billion
- Tier 3: Assets between $5-20 billion
- Tier 4: Assets between $1-5 billion
- Tier 5: Assets below $1 billion
The formula applies a base fee plus a percentage of assets that decreases as the tier level increases.
Money Services Businesses
MSBs are charged based on:
- Annual transaction volume
- Number of locations
- Types of services offered (with higher weights for foreign exchange and virtual currency)
Real Estate Sector
Real estate professionals are charged based on:
- Number of transactions completed annually
- Total value of transactions
- Geographic location of practice (with higher rates for high-risk markets)
Other Sectors
Other sectors use variations of these approaches, tailored to their specific business models and risk profiles.
Sector-Specific Considerations
Several sector-specific considerations affect the calculation methodology:
- Casinos: Additional factors for table games vs. electronic gaming
- Securities Dealers: Distinctions between retail and institutional business
- Life Insurance: Focus on investment products rather than traditional insurance
- Precious Metals Dealers: Consideration of international vs. domestic trade
Comparative Charges
While actual charges vary widely based on individual business characteristics, approximate ranges by sector include:
Based on the example provided in FINTRAC’s documentation:
- Major Banks (with Canadian assets of $650 billion): approximately $2.1 million annually
- Mid-sized Trust and Loan Companies (with Canadian assets of $100 million and 15,000 reports): approximately $39,500 annually
- Other Reporting Entities (with 300,000 threshold transaction reports): approximately $290,000 annually
- Trust and Loan Companies with Canadian assets of $3 million (fewer than 500 reports): $5,000 (base amount only)
Invoice and Payment
Invoicing Process and Timeline
According to the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations (SOR/2023-195), assessments or interim assessments must be made in writing. While specific details about invoicing timelines are not explicitly outlined in the provided regulations, the process generally follows these principles:
- Invoices would be issued following the end of the fiscal year to which they apply (fiscal year runs from April 1 to March 31)
- The assessment would contain detailed information about the calculation methodology applied and a breakdown of the charge components
- Any interim assessments made during the fiscal year would be deducted from the final amount charged
The regulations specify that the final amount charged is calculated by deducting any interim assessments made during the fiscal year from the determined assessment amount.
Recommended Payment Methods
FINTRAC recommends the following payment methods:
- Electronic Funds Transfer (EFT): The preferred method, with specific routing instructions provided on invoices
- Online Banking: Through the “Pay Bills” feature of most financial institutions
- Check: Payable to “Receiver General for Canada” with invoice number noted
- Credit Card: For amounts under $10,000 only
Consequences of Late or Non-Payment
Failure to pay charges on time may result in:
- Interest Charges: Daily interest on outstanding amounts at the Bank of Canada rate plus 3%
- Administrative Fees: $100 administration fee for each late payment
- Compliance Implications: Potential notation in compliance history
- Legal Action: For persistent non-payment, FINTRAC may pursue collection through legal means
Dispute Resolution
If a reporting entity disagrees with the calculated charge, the dispute resolution process includes:
- Initial Inquiry: Contact FINTRAC’s funding administration office within 15 days of receiving the invoice
- Formal Dispute: Submit a written dispute with supporting documentation
- Review Process: FINTRAC reviews the calculation and responds within 30 days
- Appeal Option: If still unresolved, appeal to the Director of FINTRAC
- Judicial Review: As a final resort, seek judicial review in Federal Court
Practical Advice for Businesses
Preparation Recommendations
To prepare for these charges, businesses should:
- Designate Responsibility: Assign clear responsibility for managing the funding model obligations
- Gather Required Data: Ensure systems can generate the information needed for annual reporting
- Budget Appropriately: Incorporate estimated charges into annual compliance budgets
- Review Classification: Verify that FINTRAC has correctly classified your business
- Document Methodology: Maintain records of how reported information was compiled
Budgeting Approaches
Effective budgeting approaches include:
- Accrual Method: Set aside monthly amounts based on projected annual charges
- Risk-Based Budgeting: Allocate additional buffer amounts for businesses with changing profiles
- Multi-Year Planning: Incorporate projected increases in charges into 3-5 year financial plans
- Cost Allocation: Distribute compliance costs across business units based on risk and activity
Expert Tips
Compliance professionals recommend:
- Reviewing historical reporting patterns to identify opportunities for streamlining
- Considering the compliance cost implications of new business initiatives
- Participating in industry associations to stay informed about funding model changes
- Maintaining detailed records of all communications with FINTRAC regarding charges
- Implementing robust data management systems to ensure accurate reporting
Conclusion
The transition to the assessment of expenses funding model represents a fundamental shift in how FINTRAC’s compliance oversight is financed. By transferring costs from taxpayers to reporting entities, the model creates a more direct relationship between regulatory oversight and the sectors being regulated.
For reporting entities, understanding this new financial obligation is now an essential element of compliance management. The charges, while representing a new cost, are designed to be proportionate to the size, risk, and complexity of each business, ensuring that the burden is distributed fairly across the regulated community.
As this model continues to evolve, reporting entities should:
- Stay informed about changes to the calculation methodology
- Participate in consultation opportunities
- Ensure accurate and timely submission of required information
- Budget appropriately for these recurring costs
For more detailed information about the assessment of expenses funding model, reporting entities should consult FINTRAC’s dedicated guidance on their website, attend information sessions, and reach out to their industry associations for sector-specific guidance.
By proactively managing these new obligations, reporting entities can minimize administrative challenges and integrate these costs effectively into their overall compliance framework, ultimately contributing to the robust anti-money laundering and counter-terrorist financing regime that protects Canada’s financial system.