The Bottom Line - Aim is to balance need with efficiency

Sharissa Ellyn comments on Key proposed updates to the federal government’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Aim is to balance need with efficiency
The Bottom Line
By Jeff Buckstein
Mid-September 2015

Key proposed updates to the federal government’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act address a wide range of issues including verification of identity, identification of potentially high-risk individuals within Canada, and additional recordkeeping requirements for financial institutions.

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The new regime includes other forms of recognition such as digitally, where a client logs in to an online site. “The purpose of that is to facilitate new technologies, and the ability of institutions to deal with their clients in a non-face-to-face environment,” said Sharissa Ellyn of Norton Rose Fulbright in Toronto.

“The current requirements do allow for non-face-to-face verifications of identity, but they’re very prescriptive. What these amendments will do is really open up what is available to institutions to use as a method of verification of identity.”

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(Another amendment) proposes to identify the sources that are deemed reliable enough to be used on a stand-alone basis, such as government-issued photo identification documents, plus other new sources judged reliable and independent enough to be used in combination, based on guidelines expected to be provided by the Financial Transactions and Reports Analysis Centre.

“The whole concept of reliable source is new, and that is particularly interesting,” said Ellyn. The federal government is also proposing to update the definitions of a signature card to incorporate electronic signatures.

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“If you were stuck with a physical piece of paper and a physical signature so you’d still have to call your client in to sign a piece of paper, then that wouldn’t be very helpful,” added Ellyn.

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The proposal also listed prescribed circumstances under which this would apply, including account openings — or where no account exists, very large specified transactions that are deemed to be of higher potential risk, such as the lump-sum payment of at least $100,000 for the purchase of a life insurance policy or annuity.

“There is a recognition in the new regulations that Canadian domestically politically exposed persons can present similar risks of committing money-laundering or terrorist-financing offences, just like foreign PEPs. There was originally an exclusion for foreign PEPs, and now there’s a recognition that we should have those provisions applied to domestic PEPs as well,” said Ellyn.

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Proposed additions to a reporting entity’s risk assessment will require institutions to assess and document the risks posed by the impact of new developments and technologies, including criteria such as their business relationships, products, delivery channels or geographic locations.

“A risk assessment is part of an entity’s compliance program, and so what they need to do is assess the risks of money-laundering and terrorist financing occurring in the course of their activities,” said Ellyn. “Now they have to do the additional risk assessment criteria to consider the impact of new technologies when they’re considering this risk assessment.

“When you’re considering the likelihood that your clients will use you to conduct money-laundering, new technology is a factor that should be considered. It just clarifies for anyone who wasn’t already thinking about new technologies that they have to do so,” she added.

This article originally appeared in the mid-September 2015 issue of The Bottom Line. Any other use (reprint in a newsletter, for example) requires further permission requests.