This article is Part Three of a three-part summary of 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 Three, we consider other notable amendments. In Part One, we provided details on the proposed amendments made to the Proposed Regulations regarding virtual currency, MSBs and foreign MSBs. In Part Two, we considered the proposed amendments relating to open-loop prepaid cards.
Other notable amendments
With the Proposed Regulations, the life insurance sector has entered into a new line of business: the issuance of loans (e.g., mortgages, loans against the amount of an insurance policy). At this moment, the insurance sector is not subject to the same record-keeping, reporting and customer due diligence requirements in regards to this new line of business as other financial entities. Thus, the Proposed Regulations now require the life insurance sector follows the same record-keeping practices as financial entities, to ensure the life insurance sector is treated the same as other reporting entities. Moreover, the Proposed Regulations offer clarity to the definition of reporting entities when it comes to life insurance companies. Life insurance companies can act as a facilitator between two or more life insurance companies, also known as managing general agents (MGA). Currently, when a life insurance company is acting on behalf of another life insurance company, it is considered a reporting entity that is subject to the requirements of the Act and its Regulations. However, the Proposed Regulations have amended to make clear that when a life insurance company is acting in the capacity of an MGA, it is not a reporting entity.
Customer due diligence and reporting entities
Presently, reporting entities may conduct their own costumer due diligence or rely on information collected by an agent, affiliate or subsidiary. The Proposed Regulations expand this provision to allow a reporting entity to rely on costumer due diligence performed by other entities. To rely on any information from a third party, a reporting entity must be able to request and obtain information on the method of identity verification immediately or within three days of a request. The Proposed Regulations also expand a reporting entity's ability to rely on information from a foreign affiliate. However, there are certain limits to this reliance. Notably, if it relies on information from a foreign affiliate, the reporting entity must assess the level of risk associated with the country where that affiliate is operating (e.g., is it a member of the Financial Action Task Force, or does the country have a similar PCMLTFA regime in place).
With respect to customer due diligence, when a reporting entity conducts business with a corporation, it must request proof of the corporation's existence (e.g., it would need to verify the company's certificate of its corporate status. The Proposed Regulations would require the documents used to establish proof of corporate existence be no more than one year old for the certificate of corporate status and "most recent" for other permissible documents (e.g., annual audited financial statements).
Beneficial ownership continues to be of concern for the Federal Government. The Proposed Regulations amend the requirement of verification of beneficial ownership of a company, and would require reporting entities to take reasonable measures to confirm the accuracy of beneficial ownership information and to keep this information current. Beneficial owners, who may be difficult to identify, are the natural persons who directly or indirectly own or manage 25 percent or more of a company. The new Proposed Regulations would amend the existing identity-verification obligations to explicitly state that reporting entities must take steps to confirm the accuracy of new information of the beneficial owners as it comes in or as it is updated over time.
Additionally, the Proposed Regulations will seek to lighten the heavy compliance burden reporting entities have with respect to low-risk customers, such as companies listed on the Toronto Stock Exchange.
Documentation and record-keeping
Beginning in June 2016, reporting entities were required to keep a record of any "reasonable measures" taken in situations where they were unsuccessful in meeting their obligations (e.g., When a customer would refuse to answer a certain question). However, based on the feedback from stakeholders, this record-keeping requirement posed a heavy burden on the entities. The Proposed Regulations would repeal this requirement.
Currently, the Regulations require the documents used for identity verification be "original, valid and current," and cannot be scanned or photocopied documents. The Proposed Regulations repeal the prohibition of scanned/photocopied documents, which will make identity verification easier, particularly for reporting entities that conduct business with customers remotely.
Presently, low-risk activities for dealers in precious metals and stones, such as manufacturing jewellery, are exempt from reporting obligations. The Proposed Regulations would expand this exemption to include other types of manufacturing processes that may also involve the use or consumption of precious metals and stones (e.g., diamonds used to manufacture drill bits), consistent with the original policy intent of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
The Proposed Regulations clarify that accountants who only act as a trustee in bankruptcy services or as an insolvency practitioner would not be subject to these requirements.
Politically-exposed person's (PEP) wealth
The Proposed Regulations will require that reporting entities take reasonable measures to determine the origin of PEP's funds. The amount of the funds or overall PEP wealth should appear reasonable and consistent with the information provided by the person, and any doubt about the origin of the funds should be satisfied before a reporting entity proceeds with a transaction.
In addition to the amendments laid out above, the Proposed Regulations will seek to improve compliance, monitoring and enforcement efforts, as well as the imposition of technical amendments to ensure clarity and accessibility for reporting entities to better understand the Act and its Regulations.
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