August 9 2022

Obligations of financial services providers and payment services providers under Emergencies Act Order

Borden Ladner Gervais LLP | Banking & Financial Services - Canada

Cindy Y. Zhang , Julia Webster, Olivier Tardif

Introduction
Key aspects
Compliance with order and regulations by PSPs and FSPs
Comment


Introduction

The government recently declared a public order emergency and enacted an emergency economic measures order and related emergency measures regulations under the Emergencies Act,(1) effective on 15 February 2021. These measures applied across Canada and targeted the financing of the truck convoy and blockades. A vote confirming these measures was passed in the House of Commons on Monday 21 February 2022, but the measures were revoked by proclamation on 23 February 2022 and are no longer in force.(2)

While in force, the measures created new obligations for payment services providers (PSPs), including crowdfunding sites and financial services providers (FSPs), requiring them to cease dealing with "designated persons". The changes also created new registration requirements for PSPs, which were historically not subject to regulation by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the federal authority responsible for enforcing the Proceeds of Crime, Money Laundry and Terrorist Financing Act (PCMLTFA).

Key aspects

The key aspects of these measures were the following:

  • The measures applied broadly to Canadian financial institutions, and other service providers in the financial sector, including:
    • fintech companies (payment processors);
    • money services businesses;
    • trust and loan companies;
    • insurance companies;
    • securities dealers or investment advisors;
    • virtual currency businesses; and
    • crowdfunding platforms.
  • The measures expanded the reporting entities subject to FINTRAC purview to include payment processors and crowdfunding platforms in certain circumstances.
  • FSPs and PSPs were obligated to screen current and new clients for "designated persons".
  • FSPs and PSPs had a continuing obligation to determine if they were in possession or control of property that was owned, held or controlled by or on behalf of a "designated person" and to disclose any such property to the commissioner of the Royal Canadian Mounted Police (RCMP) or to the director of the Canadian Security Intelligence Service (CSIS).
  • FSPs and PSPs had to cease services related to an insurance policy for any vehicle used in a public assembly described under the regulations (ie, an assembly that may reasonably be expected to lead to the breach of the peace by disrupting the movement of persons or goods, inferring with critical infrastructure, or supporting violence against people or property).
  • There was an "immunity" provision under the order, which legislated against civil proceedings for entities complying with the order.

Compliance with order and regulations by PSPs and FSPs

The order required a broad range of PSPs and FSPs to cease the following activities with "designated persons". Pursuant to the order, PSPs included crowdfunding platforms (domestic, foreign or virtual currencies) and entities that:

  • provided or maintained electronic funds transfer accounts;
  • held funds on behalf of an end user; and
  • initiated, authorised, transmitted, received or facilitated an electronic fund transfer, settlement or clearing services.

The prohibition included the following:

  • dealing in any property, wherever situated, that was owned, held or controlled, directly or indirectly, by a "designated person" or by a person acting on behalf of or at the direction of that "designated person";
  • facilitating any transaction related to a dealing in property;
  • 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"; or
  • providing any financial or related services to or for the benefit of any "designated person" or acquiring any such services from or for the benefit of any such person or entity (dealings prohibition).

According to an announcement by the department of finance, the obligation applied to all funds of a "designated person", including those held in a deposit, chequing, savings or trading account, and to:

  • cryptocurrency wallets;
  • lending products;
  • investment assets; and
  • insurance policies for vehicles used in the type of public assembly described under the regulations.

To comply with the dealings prohibition, FSPs and PSPs were required to undertake the same type of screening measures that they may already be subject to under Canadian economic sanctions and terrorist financing laws and the criminal code. The office of the superintendent of financial institutions published guidance on complying with sanctions screening measures under these pre-existing Canadian laws.

However, unlike Canadian economic sanctions and terrorist financing laws, the order did not specify a list of "designated persons". The government provided a list of activities under the regulations whereby a person or an entity may have been or become a "designated person". Some of these activities included:

  • participating in a public assembly that was expected to lead to a breach of peace;
  • traveling to or within an area where the assembly was taking place; or
  • collecting, providing, making available or inviting a person to provide property to facilitate any public assembly to benefit any person who is facilitating the assembly.

With respect to these activities, there was no temporal restriction on when the activity occurred for a person or entity to become a "designated person".

In order to comply with the broad scope of "designated persons", FSPs and PSPs could reach out to their local law enforcement, or the RCMP. Under the order, the federal or provincial government could disclose information to FSPs and PSPs if that disclosure contributed to the application of the order. The RCMP had reached out to certain PSPs and FSPs with a list of "designated persons". FSPs and PSPs could also complete a media search for names of individuals that have been involved in the prohibited public assemblies. However, there was a risk that individuals named in the media may not actually be a "designated person" and the restrictions in the order did not apply to them.

The order also required FSPs and PSPs to determine on a continuing basis whether they were in possession or control of property that was owned, held or controlled by or on behalf of a "designated person".

Once an FSP or a PSP had established that they had in their possession or control the property of a "designated person", they had to disclose that information to law enforcement and cease providing any services with respect to that property, which included freezing or suspending an account without a court order. The order included an "immunity" provision for civil proceedings that could lie against an FSP or a PSP for complying with the order.

Additionally, PSPs were required to register with FINTRAC if they were in possession or control of property that was owned, held or controlled by or on behalf of a "designated person", including PSPs that were not previously subject to the PCMLTFA before the enactment of the order. The language in the order tracked the language in the proposed Retail Payments Activity Act. PSPs platforms could pre-register with FINTRAC online and were required to follow other PCMLTFA reporting requirements, meaning they were required to file reports when a transaction was related to a money laundering offence or a terrorist activity financing offence by a "designated person".

Comment

Although the order and regulations are no longer in force, it should be closely monitored whether the PCMLTFA will be amended to reflect the emergency measures requiring PSPs to register as reporting entities under FINTRAC.

For further information on this topic please contact Cindy Y. Zhang, Julia Webster or Olivier Tardif at Borden Ladner Gervais LLP by telephone (+1 416 367 6000) or email ([email protected], [email protected] or [email protected]). The Borden Ladner Gervais LLP website can be accessed at www.blg.com.

Endnotes

(1) Emergencies Act, RSC, 1985, c. 22 (4th Supp.), s 19 (1):

While a declaration of a public order emergency is in effect, the Governor in Council may make such orders or regulations with respect to the following matters as the Governor in Council believes, on reasonable grounds, are necessary for dealing with the emergency.

(2) See the following provisions under the Emergencies Act:

Revocation by Parliament

21 Parliament may revoke a declaration of a public order emergency in accordance with section 58 or 59.

. . .

Effect of revocation of declaration

[26] (2) Where, pursuant to this Act, a declaration of a public order emergency is revoked either generally or with respect to any area of Canada, all orders and regulations made pursuant to the declaration or all orders and regulations so made, to the extent that they apply with respect to that area, as the case may be, are revoked effective on the revocation of the declaration.

. . .

Vote

[58] (6) A motion taken up and considered in accordance with subsection (5) shall be debated without interruption and, at such time as the House is ready for the question, the Speaker shall forthwith, without further debate or amendment, put every question necessary for the disposition of the motion.

Revocation of declaration

(7) If a motion for confirmation of a declaration of emergency is negatived by either House of Parliament, the declaration, to the extent that it has not previously expired or been revoked, is revoked effective on the day of the negative vote and no further action under this section need be taken in the other House with respect to the motion.