On February 15, 2022, the Governor in Council declared a public order emergency (the “Order”) pursuant to subsection 25(1) of the Emergencies Act, which resulted in the immediate imposition of “special temporary measures.” These measures are aimed at resolving the state of emergency brought on by continuing blockades in various Canadian cities.
More specifically, the Order declares that the emergency consists of:
- threat or use of serious violence against persons or property, including critical infrastructure, for the purpose of achieving a political or ideological objective;
- threats to economic security resulting from the impacts of blockades of critical infrastructure, including trade corridors and international border crossings;
- adverse effects resulting from the impacts of the blockades on Canada’s relationship with its trading partners, including the United States;
- the breakdown in the distribution chain and availability of essential goods, services and resources caused by the existing blockades and the risk that this breakdown will continue as blockades continue and increase in number;
- the potential for an increase in the level of unrest and violence that would further threaten the safety and security of Canadians.
While multiple special temporary measures were imposed to deal with the emergency, the measure justifying the imposition of new obligations on the financial services industry is as follows:
- measures to authorize or direct any person to render essential services to regulate or prohibit the use of property to fund or support the blockade, to require any crowdfunding platform and payment processor to report certain transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), and to require any financial service provider to determine whether they have in their possession or control, property that belongs to a person who participates in the blockade.
The new obligations established by the Order (set out below) relate to “Designated Persons,” meaning any individual or entity that is engaged, directly or indirectly, in an activity prohibited by the Order. In sum, the prohibited activities involve participating in a public assembly that may reasonably be expected to lead to a breach of peace, the serious disruption of movement of persons or goods, interference with functioning of critical infrastructure, or support threat or use of acts of violence. To comply with the Order, prescribed entities will need to first make a determination as to which assemblies are or would reasonably be expected to lead to a breach of peace.
Entities Subject to the Order
The entities that are subject to these new obligations include entities that fall under pre-existing regulatory regimes (“Existing Entities”) and entities that are not currently defined entities under any existing regulatory regime, but have been included in the Order for the purpose of relieving the state of emergency (“Emergency Entities”):
- Authorized Foreign Banks (as defined in s.2 of the Bank Act)
- Cooperative Credit Societies, Savings and Credit Unions and Caisses Populaires regulated provincially and Associations regulated by the Cooperative Credit Associations Act
- Foreign, federal and provincial insurance companies (as defined in 2(1) of the Insurance Companies Act)
- Companies regulated by the Trust and Loan Companies Act and trust and loan companies regulated provincially
- Entities regulated under the Proceeds of Crime (Money Laundering and Terrorism Financing Act (PCMLTFA)
- Entities authorized under provincial legislation to deal in securities or provide portfolio management or investment counselling services
- Entities that provide a platform to raise funds or virtual currency through donations;
- Entities that provide any of the following payment functions (note that these payment functions are virtually identical to those set out in the Retail Payment Activities Act):
- the provision or maintenance of an account that, in relation to an electronic funds transfer, is held on behalf of one or more end users,
- the holding of funds on behalf of an end user until they are withdrawn by the end user or transferred to another individual or entity,
- the initiation of an electronic funds transfer at the request of an end user,
- the authorization of an electronic funds transfer or the transmission, reception or facilitation of an instruction in relation to an electronic funds transfer, or
- the provision of clearing or settlement services.
Obligations Imposed by the Order
The obligations the Order imposes on the prescribed entities to help resolve the state of emergency include:
1. Duty to Determine:
Every entity set out below must determine on a continuing basis whether they are in possession or control of property that is owned, held or controlled by or on behalf of a Designated Person.
2. Duty to Cease Dealings:
Every entity set out below must cease:
a) Dealing in any property held or controlled, directly or indirectly, by a Designated Person or by a person acting on behalf of or at the direction of a Designated Person;
b) Facilitating any transaction related to a dealing in such property;
c) Making available any property, including funds or virtual currency, to or for the benefit of a designated person or to a person acting on behalf of or at the direction of a Designated Person; and
d) Providing any financial or related services to or for the benefit of any Designated Person or acquire any such services from or for the benefit of any such person or entity
3. Duty to Disclose
Every entity set out below must disclose the following to the RCMP or CSIS on an ongoing basis:
a) The existence of property in their possession or control that they have reason to believe is owned, held or controlled by or on behalf of a Designated Person
b) Any information about a transaction or proposed transaction in respect of such property
Additional Registration Requirement for Emergency Entities
Under section 4 of the Order, the Emergency Entities must register with FINTRAC if they are in possession or control of property that is owned, held, or controlled by or on behalf of a Designated Person. Those entities must also report suspicious transactions to FINTRAC every time a Designated Person makes a transaction that is related to:
- the commission or attempted commission of a money laundering offence
- the commission or attempted commission of a terrorist activity financing offence
Does the Order Apply to You?
The threshold question for Existing Entities in determining whether the Order applies to them should be: “Do we provide services to Designated Persons”? If the answer to that question is yes, the next steps should be to comply with the obligations set out above.
For Emerging Entities that facilitate payment functions, the assessment is:
- determine whether you provide payment functions,
- determine whether you provide payment functions to Designated Persons,
- determine whether you are in possession of property owned, held or controlled by or on behalf of a Designated Person.
If the answer to each step of this assessment is yes, you must then register with FINTRAC and comply with the obligations set out above.
For Emerging Entities that simply serve as a “platform,” the question of whether the Order applies is complicated by the breadth of the language, used in the Order, which entities that “provide a platform to raise funds or virtual currency for donations.” The Order does not provide additional detail regarding what activities constitute “providing a platform” to raise funds for donations. A “platform” at face value may include any digital medium (i.e. any website or application that provides a medium of communication, such as a social media platform) that serves as a base from which a particular service is offered.
According to the text of the Order, however, the platform must be capable of enabling donations. Absent that functionality, it is unlikely that a social media or other digital platform would be considered an Emerging Entity. Additionally, it is likely that platforms that enable crowdfunding or donation functionality by granting access to a payment service provider through that platform, would meet the definition set out above. Therefore, if a platform is an entity that enables such a service, the platform should consider itself a possible Emerging Entity and assess: (1) whether Designated Persons use your platform, and (2) whether Designated Persons use your platform to raise funds. If the answer to both of those questions is “yes”, the Platform must register with FINTRAC and comply with the obligations set out above.