Canada’s Emergencies Act tests bank compliance

The news: Banks and other financial institutions (FIs) in Canada are forced to help feds quell convoy protests over vaccine mandate after Prime Minister Justin Trudeau invoked the Emergencies Act, by the CBC.

  • The law has been on the books since 1988, but this East the first time it was used.
  • Banks enjoy legal immunity relating to compliance with the law.

What does it mean? The CBC reports that the requirements cover banks, crypto platforms, credit unions and insurance companies.

Their compliance mandates are extensive and include:

  • Monitoring and blocking of all transactions made to provide funds to protesters.
  • Report transaction details linked to certain individuals, and their property, to the Canadian Security Intelligence Service (CSIS) and the Royal Canadian Mounted Police (RCMP).
  • Completely cut customer ties with certain people linked to the demonstrations. The ramifications of this element could lead to consequences covering canceled credit cards and frozen accounts.
  • Freeze of insurance policies for vehicles involved in the protests.

The question of designated persons: The restrictions cover what the law defines as “designated persons”.

  • Banks will coordinate with law enforcement to determine who they should cut off.
  • Donors who have contributed through platforms like GoFundMe may also be considered “Designated Persons”, CBC reported, citing the text of the law. The outlet noted that there have been “questions about the extent to which this policy applies.”
  • Banks can also decide to close customer accounts and avoid doing business with them in the future although the Emergencies Act measures are temporary, CBC reported.

The big takeaway: The Emergency Measures Act adds another tedious scrutiny to banks’ usual compliance obligations, highlighting the importance of know-your-customer (KYC) practices and related technology investments.

FIs with larger, more experienced compliance arms are better prepared to handle this slog. from Canada Big 5 banks are likely to have it easier than upstart fintechs. But given that the intended range of affected customers is relatively narrow, the suddenly invoked enforcement can serve as a good pressure test of financial institutions’ agility to respond to compliance issues.