CLA: Recommendations on Proposed Amendments to the PCMLTFA for the Financing and Leasing Sector

Introduction to recommendations on Proposed Amendments to the PCMLTFA for the Financing and Leasing Sector

The CLA and its membership appreciate the opportunity to provide feedback to the pre-publication of new regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), which includes amendments extending obligations to the financing and leasing sector. Our members, ranging from large institutions to innovative small businesses, collectively offer diverse perspectives on how these amendments can target high-risk activities while minimizing unnecessary burdens. Below, we outline recommendations to refine the proposed amendments and ensure effective implementation.

Summary of Comments

  • Risk-Based Regulation: The CLA supports the Department of Finance’s adoption of a risk-based approach to regulate financing and leasing companies. This ensures regulatory efforts are focused on high-risk activities while minimizing unnecessary burdens on low-risk entities.
  • Definition of Financing and Leasing Companies: The CLA recommends clarifying the scope of the definition to ensure reporting obligations apply only to activities described in the definition, such as high-risk financing and leasing, rather than to all activities conducted by a business.
  • Clarification of $100,000 Threshold: The CLA suggests specifying that the $100,000 threshold refers to the financing or leasing amount, rather than the value of the property being financed or leased. This avoids unintended capture of low-risk transactions and aligns with standard industry practices.
  • Implementation Timeline: The CLA recommends extending the proposed implementation timeline to at least 18 months from the publication of final regulations. This extension is necessary to allow businesses to develop compliance systems, train staff, and integrate new processes effectively.
  • Support for Clarity and Practical Guidance: The CLA highlights the need for clear definitions and detailed guidance to ensure businesses fully understand their obligations and can comply effectively.

Comments

1. Support for Risk-Appropriate Regulation

We are pleased to see that the Department of Finance has proposed a risk-appropriate definition for “financing and leasing companies.” This approach ensures that the regulatory burden is tied to the level of risk associated with these entities, promoting an efficient and proportionate regulatory framework. Such a framework aligns with the principles of effective anti-money laundering and anti-terrorist financing regulation by concentrating efforts on higher-risk activities while reducing unnecessary compliance costs for low-risk entities.

2. Clarification on Scope of the Definition of Financing and Leasing Companies

We recommend that the definition of “financing and leasing companies” be clarified to specify that a company is considered a reporting entity only to the extent that it engages in the activities described in the definition. For example, if a company finances passenger vehicles (an activity included in the definition) but also finances personal items or other transactions that fall outside the definition, it should only be treated as a reporting entity for its activities that meet the specified criteria. The current definition is unclear in this regard.

Rationale:

  • Proportional Regulation: The regulatory burden should apply only to those aspects of a business that carry the risks the regulations aim to address. Expanding reporting obligations to activities unrelated to those outlined in the definition would impose unnecessary compliance requirements on low-risk business segments, diluting the effectiveness of the overall framework.
  • Clarity for Industry: Without this clarification, businesses could be uncertain about the scope of their reporting obligations, leading to over-reporting or non-compliance. For instance, a company that finances both cars (included in the definition) and personal items (not included) might mistakenly apply reporting requirements across all aspects of its business, which is inefficient and contrary to the risk-based approach.
  • Alignment with Legislative Intent: The objective of these amendments is to target activities with higher risks of money laundering and terrorist financing. Applying the definition narrowly to specific high-risk activities ensures consistency with this intent, avoiding unnecessary regulatory capture of low-risk activities.

By making this clarification, the regulations would better align with their intended purpose, provide greater certainty to businesses, and reduce the risk of regulatory overreach.

3. Clarification of the $100,000 Threshold

The current definition of “financing and leasing companies” includes entities engaged in financing or leasing property, other than real property, valued at $100,000 or more. We recommend clarifying that the $100,000 threshold should apply to the amount financed, not the total value of the property being leased or financed.

This clarification is necessary for the following reasons:

  • It aligns with how financing agreements are typically structured, which focus on the loan or financing amount rather than the overall value of the item.
  • Applying the threshold to the total property value could inadvertently include transactions with lower financing amounts, leading to unnecessary compliance burdens for low-risk transactions.
  • A clear and consistent definition will provide better guidance to regulated entities and reduce potential ambiguities during implementation.

4. Proposed Coming-Into-Force Date

We believe the proposed coming-into-force date of October 25, 2025 noted in the Draft Amendments, is insufficient for industry readiness. This timeline poses significant challenges for financing and leasing companies for the following reasons:

  • System and Process Development: Many companies, particularly those without legacy systems, will need to build new compliance frameworks and integrate them into existing workflows. Developing these systems, ensuring accuracy, and training staff typically requires more time than the proposed timeline allows.
  • Macroeconomic Pressures: The financial industry is still pivoting in response to ongoing macroeconomic challenges. Requiring companies to allocate substantial time and resources for expedited compliance would exacerbate existing operational and financial strains.
  • Precedent of Regulatory Implementation: Historically, the government has afforded industries more than ten months to comply with substantial regulatory changes. If final regulations are released in early 2025, expecting compliance by October 2025 is inconsistent with the time provided for similar amendments in other sectors.

We recommend extending the timeline for implementation to at least 18 months from the publication of the final regulations. This extension would provide the industry with adequate time to operationalize these changes, ensure compliance, and minimize disruptions to lending and leasing services.

Conclusion

The CLA appreciates the opportunity to provide input on the proposed amendments to the PCMLTFA for the financing and leasing sector. These amendments represent a significant step toward ensuring a balanced and effective regulatory framework that aligns with the principles of risk-based oversight.

Our recommendations aim to refine the scope, clarify definitions, and ensure that the implementation timeline allows for proper industry adaptation. By incorporating these suggestions, the Department of Finance can achieve its goal of targeting high-risk activities while minimizing unnecessary burdens on low-risk entities.

The CLA remains committed to collaborating with the government and stakeholders to advance policies that safeguard financial integrity while supporting the growth and efficiency of Canada’s lending ecosystem. We look forward to continued engagement and dialogue on this important issue.

About the Canadian Lenders Association 

The Canadian Lenders Association (CLA) represents over 300 companies across Canada, supporting the growth of businesses that provide loans or credit to individuals and small businesses. Our members are fintech innovators and include some of the leading financial technology companies in Canada. CLA members responsibly use innovative underwriting technology and practices to meet the needs of underserved Canadians. We support innovation across home, auto, consumer, and commercial lending sectors and collaborate with stakeholders to promote transparency, responsible practices, and ethical lending.