Previously announced amendments to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations(the Regulations) will be coming in force on June 30, 2017.
Those amendments expanded obligations with respect to the identification of politically exposed persons among existing and new account holders, as detailed below. At the same time, the transition period to continue to allow for procedures under the old guidelines for ascertaining a person’s identity has been extended to January 23, 2018.
Additional Classes of Politically Exposed Persons
The amended Regulations expand the obligation to not only take reasonable measures to determine if the person for whom the regulated entity, such as a securities dealer, opens an account is a politically exposed foreign person, but also whether the person is a politically exposed domestic person, head of an international organization, a family member of one of those persons or a person who is closely associated with a politically exposed foreign person. These amendments also require regulated entities to determine whether existing account holders fall within this expanded group of enumerated persons.
“Reasonable measures” is generally used throughout the Regulations to refer to the activities required to be undertaken in order to meet certain obligations. The amendments to the Regulations will also amend the record keeping obligation in respect of reasonable measures to require that a record be kept when reasonable measures were taken but were unsuccessful. In such circumstances, securities dealers will be required to record:
- The measure(s) taken;
- The date on which the measure(s) were taken; and
- The reason why the measure(s) was unsuccessful.
Such records must be maintained for at least five years following the date they were created.
More Flexibility in Client Identity Verification
The Regulations were amended in June 2016 to provide new methods for ascertaining the identity of individual clients with a one-year transition period during which the prior identity verification guidelines in the Regulations could be used. As announced June 14, 2017, this transition period has been extended to January 23, 2018. As before, if the identification of a client has already been ascertained under the prior guidelines, undertaking such due diligence under the new guidelines will not be required.
Notably, the amended Regulations provide increased flexibility by allowing individual identification through the use of a government issued “identification document” that contains an individual’s name and photograph. Further, agents or mandataries may ascertain information regarding client identification for a person or entity if (i) acting in their own capacity; and (ii) under a written agreement or arrangement. Guidance in respect of the new identification requirements is set out in FINTRAC’s “Guideline: Methods to ascertain the identity of individual clients”, in force as of June 30, 2016.
The Regulations, together with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act), impose obligations on a wide range of entities, including registered and registration exempt firms in Canada, and include requirements relating to reporting, filing, record-keeping, client identification, establishing and maintaining a compliance regime including an assessment and documentation of related risks to the business, as well as certain other monitoring requirements and restrictions on dealing with designated individuals and groups. While amendments were made to the Regulations in June 2016, only certain of the amendments, including, for example, an updated definition of “securities dealer” came into force at that time. The remainder of the amendments will come into force on June 30, 2017 with an extended transition period to allow for prior guidelines to be used with respect to amendments relating to client identification procedures.