Canada: Canadian AML Developments: Revised CSA Staff Notice And SEMA Iran Regulations Released

Revised CSA staff notice and SEMA Iran regulations released

CSA release revised staff notice regarding terrorist financing reporting obligations

As reported in our post of July 30, 2010, the Canadian Securities Administrators (CSA) published CSA Staff Notice 31-317 (Revised) – Reporting Obligations Related to Terrorist Financing on July 30, 2010 (the Revised Notice), updating their initial release of April 16, 2010. The Revised Notice does not refer to the new Special Economic Measures (Iran) Regulation (described below) but these new rules should be considered in conjunction with the Revised Notice.

The purpose of the Revised Notice is to clarify the CSA's view that firms relying on any exemption from the dealer or adviser registration requirements for the purposes of engaging in the business of "dealing in securities" or "providing portfolio management or investment counseling services" in any Canadian jurisdiction must comply with the Canadian federal monthly reporting and other requirements relating to terrorist financing and United Nations sanctions, described in the Revised Notice (Canadian Terrorist Financing and UN Sanctions Regulations).

The previous version of the notice referred only to registered dealers and advisers and to non-Canadian firms relying on the "international dealer" and "international adviser" exemptions under National Instrument 31-103 Registration Requirements and Exemptions.

While historically there has been some legal uncertainty as to the general applicability of the Canadian Terrorist Financing and UN Sanction Regulations (and Canadian AML legislation generally) to Canadian and non-Canadian dealers and advisers relying on registration exemptions, in the Revised Notice CSA staff express their view that firms relying on such registration exemptions are nonetheless subject to Canadian Terrorist Financing and UN Sanction Regulations.

As set out in the Revised Notice, the consolidated monthly reporting form has again been revised and should be used for all future monthly reports. The revised form also specifies that entities registered as investment fund managers in a Canadian jurisdiction are required to complete and file the form only if they are "also in the business of dealing and/or advising in securities."

The new reporting form and related instructions are also available on the websites of the CSA regulators. Filers are to complete the form monthly and submit it by email to their principal regulator on the 14th day of each month. The Revised Notice specifies that firms that do not have a principal regulator should file these reports with the regulator in the jurisdiction of Canada where most of their clients reside.

The applicable searching obligations, monthly reporting requirements and related prohibitions are outlined in the Revised Notice. Canadian and non-Canadian entities that may be subject to these requirements should carefully consider the potential application of these rules with respect to their Canadian business activities.

Special Economic Measures (Iran) Regulations now in effect

On July 22, 2010 the new Special Economic Measures (Iran) Regulations (SEMA Iran Regulations) came into effect under the Special Economic Measures Act (Canada) and were published on August 4, 2010 in the Canada Gazette. The SEMA Iran Regulations impose Canadian sanctions against the Islamic Republic of Iran and are separate from, and may not designate the same persons as under the Regulations Implementing United Nations Resolution on Iran.

The SEMA Iran Regulations impose new obligations on prescribed regulated entities, including entities "authorized under provincial legislation to engage in the business of dealing in securities, or to provide portfolio management or investment counseling services." These regulated entities are required to determine (duty to determine) on a continuing basis whether they are in possession or control of property owned or controlled by or on behalf of a person designated under the SEMA Iran Regulations (Designated Persons).

Although the Revised Notice (described above) does not refer to the SEMA Iran Regulations, the CSA may be expected to interpret the duty to determine as applying equally to registered firms, exempt international firms and other firms relying on registration exemptions as described above. Interestingly, however, the duty to determine does not give rise to corresponding monthly reporting obligations under these regulations.

The SEMA Iran Regulations do, however, prohibit Canadians and Canadian entities from engaging in certain specified activities with Designated Persons and their property and require that Canadians and Canadian entities disclose prescribed information to the Royal Canadian Mounted Police.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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