Canada: Anti-Money Laundering Update: FINTRAC Releases New Guideline On Identification Requirements For Individuals

Last Updated: July 11 2016
Article by Ana Badour and Nancy J Carroll

Most Read Contributor in Canada, September 2018

The Financial Transactions and Reports Analysis Centre ("FINTRAC") has released the new Guideline: Methods to ascertain the identity of individual clients ("Guideline") detailing the new methods to be used to ascertain the identity of individual clients. This Guideline applies to all entities ("reporting entities") that are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act ("Act") regarding their obligations to identify individuals. The Guideline was issued in connection with the amendments to the regulations under the Act which we described in our separate legal update " Final Amendments to Regulations to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act Released".

This Guideline is in force as of June 17, 2016, with a one year transition period. During this transition period, reporting entities are permitted to use either the existing accepted methods or the new methods set out in the Guideline to identify clients, at their option. If an entity previously ascertained the identity of a client in accordance with the prior regulations, it is not required to re-identify the client in accordance with the new Guideline (in other words, the changes are not retroactive). Effective June 17, 2017, when the transition period ends, reporting entities will be required to apply the methods in the Guideline.

Verifying Identity

Ascertaining a client's identity requires a reporting entity to refer to certain information or documentation to "verify" a client's identity and to ensure that such information matches what the reporting entity knows about the client. The Regulatory Impact Analysis Statement issued with the final amendments to the regulations under the Act clarifies that the action of "verifying" is not intended to require additional information gathering. Rather, it can simply mean "comparing" different pieces of identification documents.

Single Process Methods

A reporting entity can use either the identification method or the credit file method as single process methods or standalone measures to ascertain identity. The identification method requires the viewing of a valid, current original photo identification document issued by the government which contains the name and photograph of the client and a unique identifier number. The original document must be viewed in person, not online or through video conference or other virtual method, such as through a smart phone. Reporting entities cannot accept a copy or digitally scanned image of the document. The Guideline includes a specific list of examples of the types of documents issued by federal, provincial and territorial governments that constitute acceptable photo identification documents. The list is not exhaustive, and includes Canadian passports and permanent resident cards and provincial and territorial driver's licences. Equivalent foreign photo identification documents are also acceptable.

The credit file method requires obtaining, at the time the account is being opened, a copy of the credit file containing the name, address and date of birth of the individual directly from a Canadian credit reporting agency such as Equifax Canada or TransUnion Canada. The credit file must have been in existence for at least 3 years. The credit assessment (credit rating) need not be provided. The use of a third party vendor that can provide an original credit file is also acceptable.

Dual Process Method

Alternatively, a reporting entity can use the dual process method to identify a client by referring to documents or information from independent and reliable sources. When using the dual method, the reporting entity is required to obtain any two of the following original, valid and current documents or information from independent and reliable sources that contain: (1) the client's name and date of birth; (2) the client's name and address; or (3) the client's name and confirms that they have a deposit, credit card or other loan account with a Canadian financial entity.

The concept of a "reliable source" means "the source is well known and considered reputable, and is one that you trust to verify the identity of the client". Examples of reliable sources include federal, provincial, territorial and municipal governments, crown corporations, financial entities and utility providers. While the definition of "reliable" is quite broad and open ended, the detailed list in the Guideline of examples of documents or information from reliable sources is rather specific.

Examples of acceptable documents or information to verify name and address include cards or statements issued by government such as Canada Pension Plan ("CPP") statements, property tax assessments, vehicle registrations, benefits statements, Canada Revenue Agency documents such as notices of assessment, T4 statements, Record of Employment, registered account statements such as RRSPs and GICs, utility bills, identification products from a Canadian credit bureau (containing two trade lines in existence for at least 6 months) and travel visas issued by a foreign government. Examples of acceptable documents to verify name and date of birth include cards or statements issued by governments such as CPP statements of contributions, original birth certificates, marriage certificates, divorce documentation, permanent resident cards and citizenship certificates, as well as insurance documents and identification products from a Canadian credit bureau. Examples of acceptable documents or information to verify name and confirm a financial account include a credit card statement, mortgage statement, a cleared cheque and a telephone call, e-mail or letter from the financial entity holding a deposit account, credit card or loan account.

The requirement that the information come from "different sources" has also been clarified further. In particular, the Regulatory Impact Analysis Statement issued with the final amendments to the regulations under the Act, states that information from different sources could mean information from two different trade lines (e.g. a utility company bill and a credit card) or from two credit bureaus. In addition, two sources within the same credit bureau report could be acceptable as long as they are distinguishable and record-keeping obligations are met.

Any document used must be an "original", being the document obtained by the client (1) directly through mail or (2) electronically through email or by downloading it directly from the website. In the case of an electronic original, the Guideline states that the client may email the original electronic document received (forwarding the original email), or show it on their electronic device. The client can also print the original electronic statement and show the printed copy.

Third Parties that Reporting Entities can rely on to Ascertain Identity of Clients

The categories of third parties that reporting entities can rely on to ascertain identity now specifically include the following:

  • a domestic or foreign affiliate (provided such affiliate is wholly owned by, or wholly owns, the reporting entity and is either a bank, authorized foreign bank, cooperative credit society, savings and credit union, caisse populaire, life insurance company, trust company, loan company, or securities dealer);
  • in the case of a credit union, an entity that is a member of its financial services cooperative or credit union central; and
  • an agent or mandatary with which the reporting entity has a written agreement or arrangement.

The reporting entity must meet certain record keeping requirements when using any such third parties. These include recording the name of the third party ascertaining the identity, the method of identification used, the information that was gathered by the third party to verify the identity of the client, the date on which the third party verified the identity of the client, the date the reporting entity referred to the client identification information provided by the third party and if client identification was conducted by an agent or mandatary, a copy of the agreement.

Commentary

While the Guideline does provide assistance in moving towards online account opening, it still remains highly prescriptive. In particular, the Guideline does not address novel authentication methods already currently being used or tested, such as biometrics, digital identity products, or the use of the blockchain to verify identity. The Guideline also requires obtaining originals of documents, and does not permit the use of video, photos or screen shots, thereby limiting the use of the smart phone in assisting with authentication.

Challenges therefore remain in online account opening, in particular for foreign clients. For example, the use of the credit file method is limited to Canadian credit files and therefore is unlikely to be helpful in identifying foreign clients. Examples of "reliable" sources of information for the dual process method are Canadian based, other than the reference to a travel visa issued by a foreign government.

These changes may also result in certain types of entities taking on an expanded role in identity verification. In particular, credit reporting agencies, by virtue of the requirements set forth in the Guideline, will likely play a key role in the authentication market going forward.

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