On July 10, 2019, final amendments to regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act were published in the Canada Gazette. The amendments are extensive, and impact numerous aspects of Canada's AML regime. Reporting entities and related partners will need to carefully review their AML policies and procedures to ensure they will be compliant once the amendments are in force. With one exception, the amendments come into force on June 1, 2020 or June 1, 2021.
The publication of the final amendments follows the release of proposed amendments in June 2018. Finance Canada consulted with stakeholders following that, and received numerous submissions on the proposed amendments. A number of changes were made to the proposed amendments following stakeholder feedback. A summary of the changes from the 2018 proposed amendments can be found starting at p. 281 of Part II of the Canada Gazette (PDF).
Highlights of the Final Amendments
The regulations now contain provisions relating to virtual currency. "Virtual currency" is defined as:
(a) a digital representation of value that can be used for payment or investment purposes that is not a fiat currency and that can be readily exchanged for funds or for another virtual currency that can be readily exchanged for funds; or
(b) a private key of a cryptographic system that enables a person or entity to have access to a digital representation of value referred to in paragraph (a).
Persons or entities that deal in virtual currencies are considered money services businesses (MSBs), and are subject to the corresponding requirements.
There are also requirements relating to virtual currencies that apply to other types of reporting entities, including record-keeping, identification and reporting requirements for large virtual currency transactions (i.e., the receipt of $10,000 or more in a single transaction), subject to certain exceptions.
Prepaid Payment Products and Accounts
The amendments introduce the concepts of a "prepaid payment product" and a "prepaid payment product account". A "prepaid payment product" is defined as "a product that is issued by a financial entity and that enables a person or entity to engage in a transaction by giving them electronic access to funds or virtual currency paid to a prepaid payment product account held with the financial entity in advance of the transaction." There is an exclusion for products that enable a person or entity to access a credit or debit account or one that is issued for use only with particular merchants, and for products issued for single use for the purposes of a retail rebate program. The latter exception is a change from the proposed regulation. A "prepaid payment product account" is defined as an account that is connected to a prepaid payment product and that permits (a) funds or virtual currency that total $1,000 or more to be added to the account within a 24-hour period, or (b) a balance of funds or virtual currency of $1,000 or more to be maintained. There is an exclusion for certain low-risk accounts (e.g., an account to which only a public body can add funds or virtual currency).
The amendments provide for prepaid payment products to be treated similarly to bank accounts, with the result that financial entities issuing prepaid payment products are subject to client identification, record keeping and reporting requirements.
The amendments differentiate between domestic and foreign MSBs. Both need to register with the Financial Transactions Reports and Analysis Centre of Canada (FINTRAC), and are subject to similar, though not identical, requirements.
Foreign MSBs are defined as persons or entities that do not have a place of business in Canada but direct prescribed services to persons or entities in Canada. The Regulatory Impact Analysis Statement accompanying the final amendments indicates that "direct" in this context includes targeting, advertising or having a Canadian domain name.
Electronic Funds Transfers (EFTs)
There are substantial changes relating to EFTs. Currently, only prescribed reporting entities that send EFTs document information about the transaction. Reporting entities that are intermediaries in a transaction (i.e., that send EFTs initiated by other reporting entities) are now required to keep records and include information in EFTs. This is designed to ensure that this information remains with the EFT throughout the payment chain, and that reporting entities have the relevant information to detect and report suspicious transactions.
The amendments require beneficiary information to be included in international EFTs. The amendments also provide that financial entities, MSBs, foreign MSBs and casinos that are required to keep EFT records must develop and apply risk-based policies and procedures for determining, in the case of an EFT received by them that, despite reasonable measures, does not include required information, whether they should suspend or reject the EFT and any follow-up measures to be taken.
Previously, reporting entities could only rely on documents that were "original, valid and current" to verify customer identity. This impeded the ability of reporting entities to carry out their operations electronically in a non-face-to-face environment. The requirement that an identity document be "original" has been removed and reporting entities can now rely on documents that are "valid, authentic and current." In other words, reporting entities can rely on scanned and photocopied documents. This change came into force on June 25, 2019 and took immediate effect.
Suspicious Transaction Reporting
The timing for filing suspicious transaction reports has been amended. The revised regulations require suspicious transactions or attempted transactions to be reported to FINTRAC "as soon as reasonably practicable" after reporting entities have taken measures that enable them to establish that there are reasonable grounds to suspect that a transaction or attempted transaction is related to a money laundering offence or a terrorist financing activity offence. This is a change from the proposed regulation, which had provided for suspicious transaction reports to be filed within three days.
Currently, certain transactions that occur within a 24-hour period are aggregated and treated as a single transaction. The amendments (1) clarify that multiple transactions within a 24-hour period are considered to be a single transaction when they total $10,000 or more, (2) ensure that the 24-hour rule applies to beneficiaries of multiple transactions, and (3) clarify that only one report should be submitted for all aggregated transactions within a 24-hour period.
Politically Exposed Persons (PEPs)
Certain changes have been made to the PEP requirements, including extending PEP determination requirements to prepaid products accounts and certain virtual currency transactions. As well, a life insurance company or life insurance broker or agent is now required to make a PEP determination for (1) a person who makes a lump-sum payment of $100,000 or more in respect of an immediate or deferred annuity or a life insurance policy, or (2) a beneficiary to whom they are to remit an amount of $100,000 or more over the duration of an immediate or deferred annuity or a life insurance policy.
In addition, certain reporting entities are required to take reasonable measures to determine the sources of a PEP's wealth. The amount of a client's accumulated funds or wealth should appear to be reasonable and consistent with the information provided, and doubts about the origin of such funds or wealth have to be satisfied before an RE proceeds with the relationship or permits transactions to occur.
Currently, reporting entities may conduct client identification themselves or rely on information collected by an agent or affiliate. The amendments expand this to permit reporting entities to rely on customer identification information that has been previously obtained by another reporting entity, subject to certain requirements being met.
The requirements relating to credit card accounts have been revised in several respects. Among other things, financial entities are required to keep (1) a foreign currency exchange transaction ticket in respect of every foreign currency exchange transaction that is connected to the account, and (2) records relating to international EFTs of $1,000 or more transferred from or received by the account.
There are some changes to beneficial ownership requirements, including a requirement to take reasonable measures to confirm the accuracy of beneficial ownership information in the course of ongoing monitoring.
Life Insurance Sector
Requirements that apply to financial entities in respect of loans and prepaid payment products will apply to life insurance companies, subject to certain exceptions.