New Regulations Amending Canadian Anti-Money Laundering Legislation
As reported in our October 2012 Blakes Bulletin, amendments to the general regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Revised Regulations) were published in final form in the Canada Gazette, Part II on February 13, 2013. The Revised Regulations will become effective on January 31, 2014.
It is hoped that the one-year implementation period will provide regulated institutions with sufficient time to update their AML/ATF policies and modify their systems to address the new monitoring and record keeping requirements set out in the Revised Regulations. The content of the Revised Regulations remains substantially unchanged from the version released in October 2012 (discussed in our bulletin), with the following exceptions:
1. As noted in our bulletin, the Regulations introduce the concept of a "business relationship" and provide that once a business relationship is established, regulated entities will be required to conduct ongoing monitoring of the business relationship. The original Regulations provided certain exemptions from the scope of a business relationship (and thus exemptions from the requirement to conduct ongoing monitoring). One of these exemptions included circumstances where a client already had an account with a financial entity, securities dealer or casino.
The result of this exclusion was to effectively exempt all existing account holders of these regulated entities from the ongoing monitoring requirements. This oversight has been corrected in the Revised Regulations and there is no longer an exemption for ongoing monitoring of existing client relationships.
However, it is interesting to note that one of the exemptions from the definition of "business relationship" which remains in the Revised Regulations is the opening of a business account by a financial entity, securities dealer or casino where the identity of at least three persons who are authorized to give instructions in respect of the account has been ascertained.
Given that the Regulatory Impact Analysis Statement accompanying the Revised Regulations specifically provides that existing accounts are in fact subject to the definition of a business relationship, it is difficult to understand how the exemption for business accounts remains in place as, on its face, it seems to imply that all business accounts are exempt. However, it is more likely that this exclusion is meant to apply on "account opening" so that the obligation to monitor (and the business relationship) does not occur immediately on the opening of the account, but instead thereafter once any transactions or other activity is undertaken.
2. The Revised Regulations clarify that regulated entities are required to keep up-to-date records in respect of the purpose and intended nature of the business relationship between the regulated entity and their client. Previously there was only a requirement to maintain the record but not to keep it updated.
3.The Revised Regulations also clarify that the requirement to obtain beneficial ownership information and to conduct ongoing monitoring does not apply in respect of a group plan account held with a dividend reinvestment plan or a distribution reinvestment plan, where the plan sponsor is an entity whose shares or units are traded on a Canadian stock exchange and operates in a country that is a member of the Financial Action Task Force. This amendment was added to minimize the application of the Revised Regulations to lower risk accounts.
Other than the foregoing, the Revised Regulations have been released in the form discussed in the previous bulletin. As noted, these Revised Regulations will come into force on January 31, 2014.
In response to the Revised Regulations, the Department of Finance has indicated that both FinTrac and OSFI will publish updated guidance. It is hoped that this guidance will provide more instruction on the expectations of the Regulators in respect of business relationships and the ongoing monitoring requirements.
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.
