This Bulletin is a reminder of significant amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the “Regulation”) that will come into force on February 1, 2014.
Reporting entities will need to review and, as necessary, revise their anti-money laundering and anti-terrorist financing compliance regimes by that date to ensure they meet the new requirements. This Bulletin summarizes the key changes to be aware of.
Client Identification and Related Record-Keeping Requirements
The amendments will introduce the concept of a “business relationship”. This term is defined to include any relationship that a reporting entity enters into with a client to conduct financial transactions or to provide services related to those transactions. Reporting entities will be required to keep a record setting out the purpose and intended nature of its business relationship with a client.
Reporting entities will also be required to conduct “ongoing monitoring” of business relationships with clients (for all clients, not only those who pose a high money laundering/terrorist financing risk). Records of both the monitoring measures undertaken and information obtained from such measures will be required to be kept. “Ongoing monitoring” is defined as monitoring of a business relationship on a periodic basis based on the risk assessment conducted by the reporting entity for specified purposes.
A minor but important amendment will clarify that identification requirements applicable in the case of suspicious transactions also apply in the case of attempted suspicious transactions.
Enhanced Due Diligence for High Risk Clients
Under the amended Regulation, where a reporting entity determines that the money laundering/terrorist financing risk associated with a client is high, the following measures will be required to be taken:
- enhanced measures, based on the risk assessment, to ascertain the identity of a person or confirm the existence of an entity, in addition to those measures that are already required; and
- other enhanced measures to mitigate risks including: keeping client identification information and beneficial ownership information up to date and conducting ongoing monitoring of business relationships for the purpose of detecting suspicious transactions/attempted transactions (in addition to the prescribed “ongoing monitoring” requirements noted above).
Beneficial Ownership and Control
Under the current Regulation, when a reporting entity is required to confirm the existence of an entity it is required to take reasonable measures to obtain certain information about directors and beneficial owners. The amendments will make several important revisions to these provisions.
- Reporting entities will be required (i.e., not just required to take "reasonable measures") to obtain the specified information and reasonable measures to confirm the accuracy of the information obtained. A record of the information obtained and the measures taken to confirm its accuracy will be required to be kept.
- If the reporting entity is unable to obtain and confirm the required information, it must take reasonable measures to ascertain the identity of the most senior managing officer of the entity, treat the entity as high risk and apply the prescribed special measures for high risk entities.
- Where the entity to be identified is a trust, the amended Regulation will require that names and addresses of all trustees, known beneficiaries and settlors obtained.
- Reporting entities will be required to obtain information establishing the ownership, control and structure of entities they are required to identify.
Both FINTRAC and OSFI are expected to release updated guidance, which should provide insight into how regulators will expect these new compliance requirements to be applied. OSFI Guideline B-8 - Deterring and Detecting Money Laundering and Terrorist Financing was last updated in 2008, so presumably OSFI will be using the update of the Guideline to update its expectations generally. In the meantime, reporting entities should ensure that they will be in compliance with the new requirements described above when the amendments come into force on February 1, 2014.