Navigating FINTRAC Exams: How to Build, Test, and Defend Your AML Compliance Program

A FINTRAC exam can be stressful if you are unprepared. However, with a strong compliance framework and the right documentation, the process becomes manageable and even beneficial. The key is to build a solid foundation, test your program regularly, and be ready to defend it when FINTRAC comes knocking.

Understanding FINTRAC Exams

What FINTRAC Does

FINTRAC is Canada’s Financial Intelligence Unit (FIU) and the country’s AML regulator. It enforces the PCMLTFA and has the authority to examine any reporting entity or individual for AML compliance.

FINTRAC uses a risk-based approach, meaning entities with higher exposure to money laundering or terrorist financing risks are examined more frequently and in greater depth.

Types of Exams

Most exams are announced in advance, giving you time to prepare and gather materials. Unannounced exams are rare but possible, particularly for high-risk entities or repeat deficiencies.

Why These Exams Matter

FINTRAC exams are not only a legal requirement. They help ensure that your organization’s AML program is effective in preventing financial crime. Non-compliance can lead to penalties, reputational damage, or even criminal charges in serious cases.

Once you receive notice of a FINTRAC exam, any missing reports from before that date will count as missed obligations. Though changes or remediations made after the exam notice are necessary, they do not fix past gaps per se. This is why preparedness must be ongoing, not last-minute.

Building a Strong AML Compliance Program

A defensible AML program is built on five essential elements that FINTRAC requires for every reporting entity.

1. Appoint a Compliance Officer

Your compliance officer must have:

• Authority to access senior management and all business lines

• Knowledge of AML laws and regulatory expectations

• Adequate resources and independence to oversee compliance

Documentation should include an appointment letter and job description. The role must be active and engaged in daily compliance oversight.

2. Develop Written Policies and Procedures

Your written policies must be specific to your business model and risk profile. They should clearly explain how you meet AML obligations, including:

• Client identification and verification

• Transaction reporting (STRs, LCTRs, EFTs)

• Record keeping and third-party determination

• High-risk controls and enhanced due diligence

Policies must be approved by senior management, understood by staff, and reviewed regularly to reflect regulatory changes.

3. Conduct a Risk Assessment

Risk assessments form the foundation of your AML program. Identify and document risks across:

• Products and services

• Client types

• Geographic locations

• Delivery channels

Each area should include controls and mitigation strategies. Update the assessment whenever your business or risk exposure changes.

4. Implement an Ongoing Training Program

Provide regular AML training for employees, agents, and onboarding staff.
Training should cover:

• Legal obligations under the PCMLTFA

• Identifying and reporting suspicious transactions

• Internal procedures for compliance

Keep records of attendance and materials. FINTRAC may test staff understanding during an exam.

5. Conduct a Bi-Annual Effectiveness Review

Every two years, you must complete an independent review of your AML program. This review can be performed internally by independent staff or externally by consultants.

FINTRAC views these five elements holistically. Weakness in one area can affect your entire program’s credibility. Having written procedures alone is not enough; you must prove they are applied consistently.

Testing and Maintaining Your AML Program

Testing ensures your AML program remains effective and up to date. Regular evaluation allows you to detect issues early and demonstrate continuous improvement.

1. Independent Effectiveness Reviews

These reviews identify and fix weaknesses before FINTRAC finds them. They confirm that your AML controls are functioning as intended, reports are accurate, and staff training is effective. The review must result in a written report and documented remediation plan.

2. Ongoing Self-Monitoring

Compliance should be monitored throughout the year, not only during formal reviews. Useful methods include:

• Transaction testing: Sample STRs, LCTRs, and EFTs to ensure accuracy and timeliness.

• KYC file audits: Verify completeness of ID, beneficial ownership, and PEP records.

• Mystery testing: Simulate customer interactions to test staff compliance.

• Scorecards: Track key compliance metrics such as timely reporting and training completion.

FINTRAC encourages proactive monitoring. If you identify a major issue, you can submit a Voluntary Self-Declaration of Non-Compliance (VSDONC), which demonstrates good faith and may reduce penalties.

3. Keep Your Program Current

Review your policies, risk assessment, and training at least every two years. Each review is a chance to strengthen controls, incorporate updated regulatory guidance, and reinforce a culture of compliance.

4. Conduct Mock Exams

Running a mock FINTRAC exam can help identify weak areas and build team readiness. Use FINTRAC’s published checklists to ensure you have:

• A designated compliance officer

• Updated risk assessment and policies

• Completed training logs

• Recent effectiveness review reports

• Evidence of accurate reporting

Mock exams allow you to correct problems before the real examination begins.

Defending Your Program During a FINTRAC Exam

When FINTRAC initiates an exam, your objective is to show that your AML program works in practice. Preparation and organization are key.

1. Preparation and Mindset

• Gather all documents requested in the notice, using the versions that were active at the start of the exam period.

• Involve senior management early to reinforce accountability and support.

• Prepare your staff for interviews with clear, factual briefings. Avoid rehearsed or generic responses.

2. During the Exam

• Provide full cooperation and timely access to records and personnel.

• Present information in a logical and organized format.

• Be transparent about any issues and explain how they were corrected.

• Support verbal explanations with written documentation such as training logs, policies, and review reports.

3. Communicating with Examiners

Examiners are professional and maintain confidentiality. If you do not understand a request, ask for clarification. Stay calm and factual in discussions, and provide supporting evidence promptly to resolve questions.

4. After the Exam

Once the exam concludes:

• Attend the exit meeting to discuss preliminary findings.

• Review the formal findings letter carefully and respond within the requested timeframe.

• Submit a clear action plan for any deficiencies.

FINTRAC prioritizes compliance improvement over punishment. Demonstrating transparency and commitment to correction helps avoid administrative penalties.

5. Practical Tips

Conclusion

FINTRAC exams can appear intimidating, but a proactive approach turns them into opportunities for validation and growth. Building your AML program around FINTRAC’s five core elements, testing it regularly, and documenting your work ensures readiness at all times.

Remember, FINTRAC looks for programs that function in practice, not just on paper. A culture of compliance, continuous monitoring, and honest cooperation are the best defenses against enforcement actions.

Read More:

• Risk-Based Approach: Why It’s Mandatory for MSBs in Canada

• Missed Your AML Effectiveness Review Deadline? What Canadian MSBs and FinTechs Must Know

• Crypto MSBs in Canada: Registration, Monitoring, and Risk Management Essentials

• Top 8 Reasons to Outsource Compliance

Services:

• MSB Registration

• CAMLO/MLRO Services

• Effectiveness Review

• Regulatory Remediation

• AML Training