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Components of the method for charging reporting entities : Charging reporting entities for FINTRAC’s compliance program

From: Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)

Learn about the components and factors involved in the method that FINTRAC will use to charge reporting entities (businesses and individuals) for the annual cost of its compliance program.

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Components of the method

The primary factor that will determine reporting entities’ charges is the overall cost of FINTRAC’s compliance program for the fiscal year.

Note: For information regarding how FINTRAC determines the annual cost of its compliance program, refer to Determining the cost of FINTRAC’s compliance program.

The method that FINTRAC will use to determine the amounts to charge reporting entities is based on the following 4 components:

  1. Type of reporting entity
  2. Base amount (based on annual value of Canadian assets)
  3. Portion of the annual cost of FINTRAC’s compliance program
  4. Annual volume of threshold transaction reports

Component 1: Type of reporting entity

The method applies to prescribed reporting entities, and the determination of charges will differ depending on the type of reporting entity.

Further reading:

Component 2: Base amount (based on annual value of Canadian assets)

The determining factor of the base amount is the value of Canadian assets held by the entity at the end of its financial year.

Base amountsFootnote * in relation to the value of entity’s Canadian assets at the end of its financial year
Range of asset values Corresponding base amount
$1,000,000,000,000 or more $250,000
Between $500,000,000,000 and $999,999,999,999 $200,000
Between $100,000,000,000 and $499,999,999,999 $150,000
Between $10,000,000,000 and $99,999,999,999 $100,000
Between $1,000,000,000 and $9,999,999,999 $75,000
Between $500,000,000 and $999,999,999 $50,000
Between $100,000,000 and $499,999,999 $25,000
Between $10,000,000 and $99,999,999 $10,000
Between $1 and $9,999,999 $5,000

Annual adjustments to base amounts

On April 1 of every year (subsequent to 2024), all base amounts will be adjusted by the percentage change over 12 months in the April All-items Consumer Price Index for Canada, as published by Statistics Canada under the Statistics Act, for the previous fiscal year. All adjusted base assessment amounts will be rounded to the nearest dollar.

The annual indexed increases to the base amounts will be implemented to keep pace with inflation. This is consistent with other agencies that have a similar funding model (such as the Office of the Superintendent of Financial Institutions).

Why the base amount is a component of the method

The Financial Consumer Agency of Canada’s funding model involves charging its regulated entities base amounts.

FINTRAC regulates a number of the same entities, and it now has the sole responsibility for the supervision of federally regulated financial institutions for anti-money laundering and anti-terrorist activity financing purposes.

Some of these federally regulated reporting entities may not submit high volumes of threshold transaction reports (that is, casino disbursement reports, electronic funds transfer reports, large cash transaction reports, and large virtual currency transaction reports), but may still have considerable compliance obligations due to their business volumes and exposure to money laundering and terrorist activity financing risks.

The Department of Finance Canada and FINTRAC consulted a number of these entities on FINTRAC’s assessment of expenses funding model, including on the method for charging reporting entities. Feedback received during these consultations included the suggestion to explore options for a “fixed cost” component of the method.

These considerations led to the option of charging larger, federally regulated reporting entities (that is, banks, trust and loan companies, and life insurance companies) a base amount.

The base amount component was developed and incorporated into FINTRAC’s method. This component ensures that the reporting entities that have the highest overall business volumes, exposure to money laundering and terrorist activity financing risks, and supervisory obligations and complexity contribute to the cost of their regulation and supervision.

Why the annual values of Canadian assets held by federally regulated reporting entities are a determining factor

The Department of Finance Canada’s other portfolio agencies, the Office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada, use the asset information of the entities they regulate as a factor in their funding models.

The annual values of Canadian assets held by federally regulated banks, trust and loan companies, and life insurance companies reflect the size of each entity’s market share and business volumes. FINTRAC has the ability to quickly and easily obtain this information as it is reported to the Office of the Superintendent of Financial Institutions.

Determining base amounts through this factor aligns with:

Assets held outside of Canada (that is, foreign assets) are not a determining factor for the base amount.

How base amounts for parent companies and their subsidiaries will be determined

The determination of a federally regulated entity’s base amount will account for whether or not it has a subsidiary that is itself a federally regulated bank, trust and loan company, or life insurance company.

If a parent company reports a value of consolidated Canadian assets at the end of its financial year that includes the reported value of its subsidiary’s Canadian assets at the end of its financial year, then the parent company’s base amount will be determined on its consolidated value that excludes the value of its subsidiary’s reported assets. The subsidiary’s base amount will then be determined on its own reported value of Canadian assets at the end of its financial year.

How the asset value ranges and corresponding base amounts were established

The values of Canadian assets held by federally regulated banks, trust and loan companies, and life insurance companies, which are reported to the Office of the Superintendent of Financial Institutions, led to the establishment of the ranges.

The consideration of proportionality and the resulting impact on final charges for all applicable reporting entities led to the establishment of the corresponding base amounts. For example, asset proportion determined the higher-end ranges, and those ranges help to offset the charges for the majority of the other reporting entities.

The ranges and corresponding base amounts are a fair, proportionate, and transparent means for charging reporting entities in accordance with their size, market share, and business volumes, regardless of the volume of threshold transaction reports they submit each year.

Component 3: Portion of the annual cost of FINTRAC’s compliance program

Referred to as the “remaining compliance cost”, the calculation for this component is as follows:

Example of calculation of the “remaining compliance cost”
Calculation of the “remaining compliance cost”
Cost of FINTRAC’s compliance program for the fiscal year $45,000,000
Sum of all base amounts $11,890,000
Calculation of “remaining compliance cost” $45,000,000
- $11,890,000
= $33,110,000
"Remaining compliance cost" to be charged to reporting entities for that fiscal year $33,110,000
Note: The values in this example are hypothetical and used for illustration purposes only.

Note: For information regarding how FINTRAC determines the annual cost of its compliance program, refer to Determining the cost of FINTRAC’s compliance program.

Component 4: Annual volume of threshold transaction reports

This component of the method accounts for the volumes of threshold transaction reports submitted by reporting entities in a fiscal year.

Why the annual volumes of threshold transaction reports submitted by reporting entities are a component of the method

The annual volumes of threshold transaction reports submitted by reporting entities are the most practical and reasonable proxy for measuring FINTRAC’s compliance costs with respect to individual reporting entities in terms of:

FINTRAC also knows reporting entities’ reporting volumes, which reduces the administrative cost and burden of obtaining the information and determining charges.

Volume of 500 or more threshold transaction reports

Charges will apply to reporting entities that submit 500 or more threshold transaction reports to FINTRAC in a fiscal year as part of their reporting requirements.

Note: Threshold transactions are transactions of $10,000 CAD or more that must be reported to FINTRAC, such as:

Why set the volume at 500 or more threshold transaction reports

Setting the volume at 500 or more threshold transaction reports captures a broad base of reporting entities across sectors while minimizing the cost and burden of administering the method for the majority of smaller reporting entities and FINTRAC.

FINTRAC explored the effect of applying lower reporting volumes. The outcomes did not result in a significant difference to the number of chargeable reporting entities, nor did they have a material impact on the charges to the majority of the reporting entities subject to the method.

Note: The following reports that do not have monetary thresholds are not factors in this component:

Banks not subject to volume of 500 or more threshold transaction reports

This reporting entity sector is an exception, as the method will charge banks a portion of the “remaining compliance cost” regardless of the number of threshold transaction reports that they individually submit to FINTRAC in a fiscal year.

Why charge banks differently

FINTRAC developed its method for charging reporting entities in a manner that reflects the guiding principles established by the Department of Finance Canada and FINTRAC and accounts for the following 2 factors:

  1. All reporting entity sectors have inherent vulnerabilities in their products and services that place them at risk of misuse for money laundering and terrorist activity financing to varying extents. Of particular importance in this regard is the banking sector, which consists of larger, more established entities that benefit from certain types of products and services more than other reporting entities and sectors due to their size and market share.
  2. Banks play a key gatekeeping role in the Canadian financial system, which gives them an additional importance beyond size and market share. This is demonstrated through FINTRAC’s statistics, which indicate that the banking sector submits approximately 90% of the annual volume of threshold transaction reports to FINTRAC.

This design of the method ensures that banks pay a proportionate amount of the cost of their supervision, as it results in a closer alignment of charges to the banking sector’s:

Summary of the components for each type of reporting entity

Note: For details and examples of how charges will be determined for each type of reporting entity, refer to Determination of charges by type of reporting entity.

Components of the method vs. type of reporting entity
Component 1: Type of reporting entity Banks Trust and loan companies and life insurance companies Other reporting entities that submit 500 or more threshold transaction reports in a fiscal year
Fewer than 500 threshold transaction reports submitted 500 or more threshold transaction reports submitted
Component 2: Base amount (based on annual value of Canadian assets) Applicable Applicable Applicable Not applicable
Component 3: Portion of the annual cost of FINTRAC’s compliance program Applicable Not applicable Applicable Applicable
Component 4: Annual volume of threshold transaction reports Applicable (but treated as an exception – details provided in the formula for banks) Not applicable Applicable Applicable

Estimating charges

Reporting entities may be able to estimate their charges based on:

Note: While FINTRAC does not anticipate that charges will significantly vary from one year to the next, they may fluctuate depending on certain factors, such as:

For information regarding an additional factor that may result in fluctuations in charges, refer to Determining the cost of FINTRAC’s compliance program.

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