On July 4, 2015, the Government of Canada published for comment long-awaited amendments to regulations made under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. These amendments implement certain legislative changes introduced in the 2014 omnibus budget bill.
The good news is that the proposed amendments provide for some much-needed updates to the manner in which reporting entities can perform client identification. The default model for identification procedures contemplates an in-person verification. Under the existing rules, doing non face-to-face identification, while possible, is difficult, cumbersome and fraught with the possibility of error – and is particularly problematic for online transactions. The amendments would see a more flexible approach to identification with a broader range of information sources that could be used. For example, a single piece of government-issued photo ID would be sufficient to ascertain identification. Equally, a combination of methods could be used where the information is obtained from an independent “reliable source”. The commentary that accompanies the release indicates that FINTRAC will be providing guidance on the methods that could be considered for the dual-method identification procedures. Clearly though, one outcome will be that doing non face-to-face client identification will become easier.
A theme that runs through the proposals is the closing of gaps between the current Canadian regulatory requirements and the recommendations made by the international standard-setting body, Financial Action Task Force (FAFT). One such gap is in the area of due diligence on customers of reporting entities who are “politically exposed persons”. Today, the requirement to take extra screening measures applies to politically exposed foreign persons. The proposed regulations would extend the rules to cover politically exposed domestic persons. Account openings and specified transactions involving such persons would be subject to enhanced due diligence, recordkeeping and reporting requirements.
Each reporting entity is currently required to make a risk assessment that serves to evaluate and document the money laundering and terrorist financing risks to which the entity is vulnerable. The proposed amendments would add another element to the assessment, requiring the reporting entity to consider the impacts of new developments and technologies (business relationships, products, delivery channels and geographic locations) on the existing assessment criteria.
The proposals also include housekeeping amendments. For example, they would clarify that a reporting entity that relies on an agent to verify client identity on its behalf could use identification measures that were previously undertaken by the agent on behalf of another reporting entity or for itself (i.e., where the agent is also a reporting entity in its own right). This would rid the system of some unneeded duplication. As well, a reporting entity would be able to recognize an existing customer through digital means or online, in addition to doing so visually or by voice. For securities dealers, the amendments clarify that for purposes of the anti-money laundering compliance rules, the reporting entity – not the dealing representative – is the dealer. A dealing representative of a dealer is not expected to have its own compliance program, and its obligations would be met by adhering to the compliance program of its sponsoring dealer.
The scope for administrative monetary penalties (AMPs) will be updated under the amendments to capture the full range of activity prohibited under the Act.
Interested persons may submit comments to the Department of Finance, Financial Systems Division until September 2, 2015. The amendments are expected to be in force later this year. These proposed amendments do not fully implement the legislative changes contained in the 2014 statute. A further round of implementing regulations are expected in the fall.