This article is Part Two of a three-part summary of the proposed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (Proposed Regulations), announced by the Department of Finance on June 9, 2018. In Part Two, we will discuss proposed amendments relating to open-loop prepaid cards. In Part One, we considered the proposed amendments made to the Proposed Regulations regarding virtual currency, Money Services Businesses (MSB) and foreign MSBs. In Part Three, we plan to consider other notable amendments.
Introduction: Strengthening the risk of prepaid payment products
The Financial Action Task Force's (FATF) 2016 Mutual Evaluation Report (Report) reaffirmed the quality of Canada's Anti-Money Laundering/Terrorist Financing (AML/TF) regime, while identifying some notable, high-risk gaps. Among those gaps was the lack of AML/TF regulation applicable to open-loop prepaid cards.1 The Report also noted that global open-loop prepaid card transaction volumes grew by more than 20 percent and reached 16.9 billion annually in 2014.2
For the purposes of the Proposed Regulations, prepaid cards are "cards that run on a payment card network and are not restricted for use only at a particular merchant or group of merchants, such as a shopping centre gift card [and] provide access to funds that are paid in advance by the cardholder or a third party".3 These cards are not linked to a cardholder's bank account; instead, they allow a cardholder to complete transactions by giving them electronic access to funds or virtual currency paid to a "prepaid payment product account" held with a financial entity (e.g., banks, credit unions, insurance companies, trust companies and loan companies). Under the Proposed Regulations, "prepaid payment product accounts" are defined as accounts that are connected to a prepaid payment product and that permit: (a) one or more transactions that total CA$1,000 or more to be conducted within a 24-hour period; or (b) a balance of funds or virtual currency available in the amount of CA$1,000 or more to be maintained.
The Department of Finance states that the Proposed Regulations "would help address and close the gaps that exist in Canada's AML/TF regime, including regulating new business models and technologies, and address new emerging risks".4 The amendments recommend that prepaid access products, such as prepaid cards, would be treated as bank accounts for the purposes of easing regulation.5 Thus, people and entities would be subject to the same customer due diligence requirements that apply to entities offering bank accounts. These requirements include: (a) identity verification; (b) keeping records, and (c) suspicious transaction reporting.
The new requirements: Additional details
The Proposed Regulations set out the requirements applicable to financial entities when opening prepaid payment product accounts and to all transactions thereafter.
Write it in the books: Record-keeping
To comply with the Proposed Regulations and ensure they are enforced, financial entities must engage in record-keeping activities.
These activities include recording the (a) signature card; (b) name(s); (c) address(es); (d) telephone number(s); (e) nature of business; (f) occupation(s); (g) date of birth of every individual, corporation and entity; (h) intended purpose of the prepaid payment product account; (i) application; and (j) detailed transaction records, including payments made to the account.
I.D please: Identity verification
Financial entities will be required to verify the identity of a person, corporation or entity for whom it opens a prepaid payment product account, or when a payment of CA$1,000 or more is made to a prepaid payment product account.6
Want to know more?
You can read the full report here.
1. The Financial Action Task Force, "Anti-money laundering and counter-terrorist financing measures-Canada: Mutual Evaluation Report," Asia/Pacific Group on Money Laundering (September 2016). ↩
2. Ibid at 83, n 82.↩
3. Canada, Department of Finance, Regulations amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2018, June 2018 (Ottawa: Department of Finance, 9 June 2018) [Proposed regulations]↩
6. Proposed Regulations, supra note 3 at 88.↩
6. Proposed Regulations, supra note 3 at 88.↩
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