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NCFA Response to FINTRAC’s ‘Knee Jerk’ Regulations Requiring Donation Crowdfunding Platforms to Register and Comply with AML/ATF Legislation


About NCFA Canada | June 10, 2022

“In summary, the regulations are ineffective, burdensome, anti-competitive, and damaging to both the domestic donation crowdfunding sector and the Canadian nonprofit/charitable sector. The goal of protecting Canadians from money laundering and terrorism is laudable, but these regulations should be scrapped, and new regulations drafted in full consultation with stakeholders.” – Daryl Hatton, Founder/CEO, FundRazr

Note to reader: thanks to the following National Crowdfunding & Fintech Association of Canada (NCFA) members and advisors who contributed in the preparation of this post: Robin Ford (Principal, Robin Ford Consulting), Daryl Hatton (Founder/CEO, FundRazr), David Durand (Founder and Managing Partner, Durand Lawyers), Craig Asano (Founder/CEO, NCFA), Richard Remillard (Principal, RCG Group), and Charlene Cieslik (Chief Compliance Officer, Localcoin)

Background – Emergency Economic Measures Order

On February 14, 2022, the federal government took the unprecedented step of invoking the Emergencies Act to end disruptions, blockades, and an occupation in the city of Ottawa. This included an extension of AML/ATF (anti-money laundering and anti-terrorist financing) obligations to donation crowdfunding platforms and certain payment service providers, without notice, but on a temporary basis.

When the Emergency Economic Measures Order and related Emergency Measures Regulations were revoked on February 23, 2022, the government announced its intention to quickly make permanent the donation crowdfunding AML/ATF requirements.

New regulatory amendments now apply to impose AML/ATF registration, reporting, and other requirements on donation crowdfunding platform services carried on in Canada and on some related payment service providers. Regulated equity/investment and loan crowdfunding was already caught. See: https://www.gazette.gc.ca/rp-pr/p2/2022/2022-04-27/html/sor-dors76-eng.html.

(We do not deal here with the removal of exemptions for payment processing of credit, debit, and prepaid products under the definition of “electronic funds transfer”.)

Read: ‘Immediate emergency situation is over’: PM Trudeau revokes Emergencies Act

While amendments could in theory create an additional cost-effective layer of protection for donation crowdfunding, the government has not provided an analysis of the risks (or data) sufficient to justify the changes, or the extent of the changes. So far as we can tell (given the absence of data and analysis), the government, in an unseemly rush, has seriously over-reacted.

We raise here some significant issues with the amendments and the process of their enactment.

Improper consultation

The federal government did not properly consult on the amendments to the Regulations.

The amendments were made on April 5 and came into effect immediately, but were not published in the Gazette until April 27. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) published this notice to reporting entities on April 27 – https://fintrac-canafe.canada.ca/notices-avis/2022-04-27-eng.

Unlike previous amendments, notice did not appear on the government’s “Consulting with Canadians” web page.

The Government justified the failure to consult as follows:

“In order to swiftly address the serious and immediate risk to the security of Canadians and the Canadian economy posed by crowdfunding platforms and certain payment service providers due to their vulnerability to being exploited for money laundering and terrorist financing purposes, the Regulations were exempt from the requirement to prepublish.”

The government provided no data to support the conclusion of “serious and immediate risk”. To put this another way, the justification in “support” appears to be entirely theoretical (aka ‘trust us’ – see below).

No transition provisions

Donation platforms were given no time to register with FINTRAC and ensure their compliance programs, policies and procedures were updated to comply. So, they were immediately in a position of non-compliance. FINTRAC says it will “focus its compliance activities on registration requirements and educating impacted sectors”. In our view, this is not a proper way to “work around” immediate coming into force.

Who is caught?

The government claims that the new AML/ATF requirements will catch approximately 1,000 additional businesses in the donation crowdfunding and payment service provider sectors. Since we are aware of only a very small number of Canadian-based donation platforms, we assume that most of these are based elsewhere, but doing business in Canada (e.g, GoFundMe). The government has provided no data in support of its claim.


While recommendations of the Financial Action Task Force (FATF) do indeed address money laundering and terrorist financing risks that may arise from the development of new products and new business practices, as the government notes, FATF guidance is also very clear that governments should take a risk-based approach in their implementation. The government’s Regulatory Impact Analysis shows no risk analysis beyond high level assertions. To the extent there is data in support, we have not seen it, so cannot comment on it.


The Regulatory Impact Analysis states: “Actions to counter money laundering and terrorist financing have long been recognized as powerful means to combat crime and protect the safety and security of Canadians.” What actions? Where is the data to support this statement? All data of which we are aware in fact shows that the global AML/ATF system at best does not work well and is very costly for businesses and consumers. For a recent critique see: https://www.lawgazette.co.uk/commentary-and-opinion/aml-laws-have-failed-it-is-time-to-start-again/5112496.article. We agree that we need to start again.

The government concludes that the amendments “will help prevent the financing of illegal activities through these types of financial services”, but again provides no evidence in support. They partly side-step this problem by saying: “there are substantial qualitative benefits associated with the proposed amendments that cannot be monetized due to the lack of available or reliable data to accurately measure the reputational, economic, and national security benefits that would result from the implementation of the regulatory changes”. This is simply not good enough.

Cost (including excessive burden)

There is widespread agreement that the regulatory burden and related costs imposed by AML/ATF requirements in Canada are significant: building, instituting and overseeing a compliance program subject to biennial audits and FINTRAC examinations; ongoing regulatory requirements including client identification, transaction reporting, and record keeping procedures, and more. To get a feel for the burden, see this IIROC guidance (which applies to authorized broker/dealers) – https://www.iiroc.ca/news-and-publications/notices-and-guidance/anti-money-laundering-compliance-guidance-0

In addition, donation platforms and related payment service providers must report or verify transaction amounts of $1,000 or more. This is a significant ‘raise’ over the usual amount applicable to other reporting entities of $10,000. The cost burden of reporting transactions of $1,000 or more (plus related additional costs for each donation) will severely reduce net donations. Have the costs of this additional level of compliance and the impact on the charitable sector been properly researched and taken into account?

See: Crowdfunding platforms now required to report transactions to FINTRAC, after truck convoy protests

Finally, since (so far as we are aware) the government already gets much of the required data as the money moves through the banks and other payment service providers (already regulated), we are not told why the additional requirements are needed at all.

Nor must it be forgotten that many organizations, including registered charities who receive donations for charitable purposes (via donation crowdfunding or not) are subject to enhanced scrutiny by the fiscal authorities. See: Canada Revenue Agency Act (eg, https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/checklists-charities/checklist-charities-on-avoiding-terrorist-abuse.html), the Income Tax Act, and the Charities Registration (Security Information) Act. And see: https://umanitoba.ca/centres/mipr/media/Following_the_Money_Trail_-_Kari.pdf.

The government estimates that it will cost donation platforms a total of $18-$20 million over the next 10 years in administrative and compliance costs. But there is no data provided to support this estimate. To this will be added the cost-recovery scheme for FINTRAC’s compliance activities once the scheme is implemented (about which we also know very little so far).

There appears to be an element of wishful thinking in the assumptions and estimates said to underlie the so-called cost benefit analysis. Given the very high (relative) burden for smaller firms, it is unacceptable that the data and risk analyses are not provided in detail so that they can be contested.

These changes also appear to be profoundly anti-competitive; if regulation is not proportionate and risk-based, smaller Canadian-based platforms may fail, leaving only larger foreign platforms in the Canadian market.

The only concession to smaller donation platforms (eg, the Canadian platforms) is FINTRAC’s promise that its “risk-based approach” will allow entities to comply with the Act in a manner that accounts for their size, activities, and transaction volumes. We will be watching.

But how bad is it really?

Daryl Hatton, Founder and CEO of FundRazr, Canada’s largest donation crowdfunding platform, speaks out (https://fundrazr.com/)

“The new requirements will impose a very costly burden on community service crowdfunding platforms while providing no real added benefits. These costs will impede the successful delivery of fundraising services that help the Canadian nonprofit/charitable sector fund social services programs.”

These services are a significant component of the Canadian economy: 8.5% of Canadian GDP ($169B) in 2017 according to Stats Canada.

A single $1,000 transaction representing a donation to a Canadian charity will generate between $0 and $50 of revenue for the crowdfunding platform. The costs of processing this transaction and reporting it to FINTRAC will exceed the revenue generated. This is obviously not sustainable and will significantly reduce the ability of crowdfunding platforms to process larger gifts. This will reduce revenue for the Canadian nonprofit sector at a time when it is struggling. CanadaHelps Giving Report 2022 already projects a decline of 12% in total giving from 2019 to 2021 due to pandemic impacts and inflation. Transactional information from the first quarter 2022 indicates the decline will likely be bigger. The AML/ATF regulations will exacerbate the decline.

Most and perhaps all Canadian donation crowdfunding platforms process transactions via payment processors and Canadian banks which are already required to obtain identity information and keep records for all recipients of donated funds.

Donors are now required to provide validated proof of their personal information beyond the usual name, address, and credit card information. This will cause many donors to abandon the transaction, further damaging fundraising activities. They will do this because the added identity burden is intrusive and is not placed on them for e-commerce transactions or for donations made directly to charities on their websites. As some smaller charities use crowdfunding platforms to process contributions on their websites, this further distorts the market both between crowdfunding platforms versus other payment processing mechanisms and between large and small charities. The playing field is no longer level.

More: NCFA Advocacy

Existing regulations require reporting of individual transactions of $10,000 or more. The regulations lower the threshold to $1,000 without providing any evidence that even a $10,000 level is an effective deterrent to money laundering. Bad actors wishing to circumvent these rules will simply break their transactions into multiple pieces all less than the specified threshold. As these are electronic transactions, the costs to the bad actors of doing this splitting are minimal.

In summary, the regulations are ineffective, burdensome, anti-competitive, and damaging to both the domestic donation crowdfunding sector and the Canadian nonprofit/charitable sector. The goal of protecting Canadians from money laundering and terrorism is laudable, but these regulations should be scrapped, and new regulations drafted in full consultation with stakeholders.

Effectiveness of FINTRAC and conclusion

But all this raises another issue. How rigorously will FINTRAC review applications for registration? Will it do a quick once over and tick the box for registration, with a “risk-based” review of compliance by apparently smaller or less “risky” platforms to come perhaps years later? Will a platform be able to register and proclaim registration as a money services business as a badge of honesty and legitimacy, then take donations for 6 months and disappear?

And how effective is FINTRAC generally? We have no idea really, although we are aware of recent efforts to boost its capacity. And what about the balance between individuals’ privacy rights and the government’s ability to gather evidence to enforce laws?

This is knee-jerk regulation of the highest order. While everyone supports measures to mitigate money laundering and terrorist financing risks, this is not the right approach. There is a better way forward which the NCFA would be happy to discuss with relevant federal officials.


NCFA Jan 2018 resize - NCFA Response to FINTRAC’s ‘Knee Jerk’ Regulations Requiring Donation Crowdfunding Platforms to Register and Comply with AML/ATF LegislationThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada’s Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org




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