On June 1st, a number of regulatory amendments published in the Canada Gazette on July 10, 2019 and on June 10, 2020, will come into force concerning the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
To reflect these changes, The Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) updated its guidance on
Compliance program requirements
These requirements are applicable to all reporting entities (REs) and include the elements that must form part of their compliance program such as the appointment of a compliance officer and the conditions of eligibility for this role, the implementation of procedures and policies, the conduct of risk assessment related to ML/TF activities.
The guidance also includes provisions related to the travel rule requiring REs to develop and apply written risk-based policies and procedures to help determine whether they should suspend or reject an electronic funds transfer (EFT) or virtual currency transfer they receive.
Regarding the requirements to implement a compliance training program, while the guidance recommends that training should be done on a ongoing basis (monthly etc…) , it also interestingly provides a list of training recipients that includes those who:
Have contact with clients, such as front-line staff or agents.
Are involved in client transaction activities.
Handle cash, funds, or virtual currency.
Are responsible for implementing or overseeing the compliance program.
Methods to verify the identity of persons and entities
This guidance requires all REs to verify the identity of a person or an entity and explains the methods that they should follow including:
The government-issued photo identification method
The credit file method
The dual-process method, by doing 2 of the following: referring to information from a reliable source that includes (i) the person's name and address, (ii) the person's name and date of birth, or (iii) referring to information that includes the person's name and confirms that they have a deposit account, a prepaid payment product account, or a credit card or other loan account with a financial entity.
The affiliate or member method
The reliance method, a new method permitting REs to proceed with identity verification by relying on the measures that were previously taken by another RE, an affiliated foreign entity
The simplified identification method, another new addition allowing certain REs to be deemed to comply with their identify verification requirements when their considered, based on their risk assessment, that there is a low risk of a ML/TF offence. Impacted REs must keep appropriate record of their determination. This method must only be used by banks, authorized foreign banks, cooperative credit societies, savings and credit unions, caisses populaires, life insurance companies, trust companies, unregulated trust companies, loan companies, and securities dealers.
Third party determination requirements
These requirements are applicable to all REs but concerned only certain transactions and activities. Third-party determination must happen in the following case:
- When a RE receive cash in an amount of $10,000 or more, and is required to submit a Large Cash Transaction Report (LCTR) to FINTRAC or to keep a large cash transaction record.
- When a RE receive an amount of virtual currency (VC) equivalent to $10,000 or more, and is required to submit a Large Virtual Currency Transaction Report (LVCTR) to FINTRAC or to keep a large virtual currency transaction record.
- When a RE (i.e., financial entity, securities dealer…) is required to keep record of a signature card or account operating agreement.
Although, third-party determination will not be required when opening a credit card account or a prepaid payment product account.
- Information record requirements applicable to a money services business (MSB) or a foreign money services business (FMSB) among others.
- Casino Disbursement Report
These requirements are applicable to all REs. The main obligation for REs is the submission of a Terrorist Property Report (TPR) to FINTRAC under the PCMLTFA, reporting that must be done immediately when the disclosure is required under the Criminal Code.
Obligations regarding terrorist groups, listed persons and other sanctioned individuals and entities (known as 'Designated Persons') falling outside of the scope of the PCMLTFA and associated Regulations have not been addressed in this guidance.
Three new guidance were also published by FINTRAC, namely:
Prepaid payment products (PPPs) and prepaid payment product accounts (PPPs accounts)
Applicable to financial entities (FEs) that offer prepaid payment products (PPPs) to the public, or maintain prepaid payment product accounts (PPP accounts).
PPPs is defined as ‘a product that is issued by an FE that enables a person or entity to engage in a transaction by giving them electronic access to funds or to virtual currency (VC) paid into a PPP account held with the FE in advance of a transaction taking place.
It excludes a product that:
enables a person or entity to access a credit or debit account;
is issued for use only with particular merchants (for example a retail store); or
is issued for single use for the purposes of a retail rebate program’
PPPs accounts are ‘accounts that are connected to a PPP and that permit:
funds or virtual currency that total $1,000 or more to be added to the account within a 24-hour period; or
a balance of funds or virtual currency of $1,000 or more to be maintained.’
They do not include an account to which only a public body can add funds or VC; or a registered charity.
PPP accounts are subject to account-opening obligations (i.e., identity verification, reporting requirements, record keeping requirements, beneficial ownership requirements and so forth…).
Transaction reporting guidance: the 24-hour rule
Applicable to all REs and explains when the latter must consider multiple transactions within a 24-hour period as a "single transaction", concept known as "the 24-hour rule".
The 24-hour rule is the specifically the requirement for all REs to aggregate multiple transactions when they total $10,000 or more within a consecutive 24-hour window when the transactions are conducted by the same person or entity; conducted on behalf of the same person or entity, or for the same beneficiary (person or entity).
Those transactions are to be reported to FINTRAC in a single report.
Travel rule for electronic funds and virtual currency transfers
These requirements apply, among others, to FEs, MSBs and FMSBs.
FEs, MSBs and FMBs have the obligation to ensure that specific information is included with the information sent or received in an EFT or a VC transfer.
Information related to EFT are the following:
The name, address and account number or other reference number (if any) of the person or entity who requested the transfer.
The name and address of the beneficiary.
Where applicable, the beneficiary's account number or other reference number.
Information related to VC are list below:
The name, address and the account number or other reference number (if any) of the person or entity who requested the transfer.
The name, address and the account number or other reference number (if any) of the beneficiary.
FEs, MSBs and FMSBs must have in place procedures and policies demonstrating the rationale for allowing, suspending or rejecting a transactions as well as appropriate measures to address each situation.
All these FINTRAC guidance will come into effect on June 1st, 2021, while some flexibility will be allowed, impacted entities must take the necessary actions to comply with the various requirements in a timely fashion.