40 Private Capital Markets | Spring 2014 | www.pcmacanada.com
laundering and terrorist financing. Canada operates a regulatory
framework where OSFI works closely with FINTRAC in order
to ensure FRFIs implement policies and procedures to ensure
compliance with the local necessary regulations.
In the FATF’s 2008 evaluation of Canada’s
AML regime, Canada’s AML legislation
was found to be inconsistent with the
international standard for dealing with
customer identification. Canada
was criticized for not implementing
sufficient measures to ensure
market participants were able
to identify their customers,
understand their operations and
conduct ongoing monitoring of
their behaviour. This continued
criticism placed Canada in a
difficult position. If notable and
continuous improvements were
not made, Canada could face
increased scrutiny from FATF and
more burdensome reporting obligations
and other restrictive measures.
Since 2008, Canada has responded
with changes to The Proceeds of Crime
(Money Laundering) and Terrorist Financing Act
(PCMLTFA) and associated regulations. For example,
in 2008 changes were made to monetary penalties in addition to
changes which mandated every organization subject to the act to
conduct an independent bi-annual review of their AML/CTF program.
Further amendments to PCMLTFA have been proposed with
the aim of further closing the global AML legislative gap and to
better align Canada’s requirements with key international players.
Proposed Changes to Canada’s AML/CTF Regulations
On October 13, 2012, Canada’s Department of Finance
released draft regulations to amend Canada’s AML obligations.
These changes which became effective on February 1, 2014, impact
reporting entities’ obligations by changing the way they are required
to identify customers and monitor their customers’ behaviour.
Specifically, the 2014 amendments address the following:
• Ongoing monitoring of all business relationships with
customers using a risk based approach.
• Obtaining information on the purpose of a business relationship
when entering into that relationship with a customer.
• Clarifying that enhanced due diligence measures should
be taken in respect of all high risk customers, activities or
transactions. This includes keeping customer information up
to date and conducting enhanced ongoing monitoring.
• Obtaining documentary evidence from the customer that
confirms details of beneficial ownership.
• Clarifying that no exceptions exist to reporting entities’
obligations to conduct customer due diligence measures
in respect of any transaction or activity that gives rise to a
suspicion of money laundering or terrorist financing.
So how will the proposed changes to legislation impact
affected securities dealers? General feedback is that the new
changes will increase the regulatory burden on firms, many
of whom have already invested heavily in meeting
the current requirements. The most significant
amendment however will be that all
customers will have to undergo ongoing
monitoring which is a vast change to
the current regime which stipulates
that only high risk customers
require this. Comments from
market players have included
concern over whether the new
rules mean firms will have to look
back over customer information
held and reassess whether
“business relationships” exist
and, as a result, customer due
diligence is now relevant.
It is also important to note
that the Canadian Securities
• The KYC process should not be viewed as a checklist to
complete. Customers need to be made aware of the purpose
of obtaining their KYC information and the registrant must be
able to evaluate the AML/CTF risk they pose;
• The registrant cannot delegate the responsibility for knowing
their customers to another unregistered individual. While
they can assist in collecting the information, the ultimate
burden and risk lies with the registrant; and
• If the registrant is waiving certain KYC requirements as a
result of treating the customer as a ‘permitted client’ in line
with NI 31-103, adequate information must be obtained to
support the classification.
Oversight by regulators is becoming more active and focused.
Recent experience has indicated that Canadian securities dealers
are facing greater AML/CTF regulatory scrutiny which is expected
to continue, warranting industry participants’ concerns in relation
to the new regulatory changes. Our exposure to recent regulatory
communications including AML/CTF findings in respect of various