On October 13, 2012, the Canadian government published proposed regulations amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (AML Regulations). The amendments are necessary to align Canada’s anti-money laundering legislation with the Financial Action Task Force (FATF) recommendations, and the amendments reflect the government’s consultation with interested parties on its November 7, 2011 consultation paper. The proposed regulations clarify certain ambiguities contained in the consultation paper, and once the final regulations are published, FINTRAC and OSFI can be expected to provide further guidance. The final regulations will come into force one year after they are published.
The proposed regulations are open for comment until mid-November.
Overview of Key Proposals
The proposed regulations codify the concept of “business relationship” found in FATF recommendation 10 and require reporting entities to conduct “ongoing monitoring” of their business relationships. These concepts were contentious when they were introduced in the consultation paper because their vagueness created a concern that they would impose additional requirements on reporting entities. In response, the definition of “business relationship” in the proposed regulations has been narrowed to relationships with a client to conduct financial transactions or provide services in respect of which the identity or existence of an individual or entity is otherwise required to be ascertained or confirmed under the AML Regulations. The government expresses its view that the regulations do not introduce any new administrative burden on reporting entities; they are simply intended to resolve ambiguities in the existing legislation, but it is not certain whether that will be the case.
"Ongoing monitoring" is defined to mean monitoring of a business relationship, based on a risk assessment, for the purpose of detecting suspicious transactions; keeping client identification and beneficial ownership information up to date; reassessing the level of risk associated with the client’s transactions and activities; and determining whether transactions or activities are consistent with information obtained about the client.
Other notable requirements regarding beneficial ownership include the following:
- Occupations of directors and individuals who own or control, directly or indirectly, 25% or more of a corporation or other entity are no longer required to be obtained.
- The names and addresses of all trustees and all known beneficiaries and settlors of a trust must be obtained.
- Information establishing the ownership, control and structure of an entity must be obtained.
- If beneficial ownership information cannot be obtained, reporting entities must take reasonable measures to ascertain the identity of the most senior managing officer of the entity and must treat the entity as high risk.
- Reporting entities must take reasonable measures to confirm the accuracy of beneficial ownership information and must keep a record describing the measures that were taken.
Other notable aspects of the proposed regulations include the following:
- The purpose and intended nature of business relationships must be recorded.
- Client identification exemptions do not apply if a client is involved in a suspicious transaction.
- Risk mitigation measures have been clarified.
For the proposed text and information on how to comment, please see Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations.