FINTRAC Updates Guidance on Politically Exposed Persons, Business Relationships and Ongoing Monitoring Requirements
In February 2021, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) updated its guidance on (1) politically exposed persons (“PEPs”) and heads of international organizations (“HIOs”) (“PEP and HIO Guidance”), (2) business relationship requirements (“Business Relationship Guidance”), and (3) ongoing monitoring requirements (“Ongoing Monitoring Guidance”).
The updated guidance relates to the series of regulatory amendments made to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “PCMLTFA”) and its Regulations over the past few years, a majority of which will come into force on June 1, 2021. Our prior summaries of the regulatory amendments can be found here and here.
PEP and HIO Guidance
Previously, only financial entities (“FEs”), securities dealers, money services businesses and life insurance companies were required to determine whether their customers were PEPs. As of June 1, 2021, all reporting entity (“RE”) sectors will have PEP and HIO obligations under the PCMLTFA and its Regulations (refer to our previous blog post for more detail regarding these amendments to the PCMLTFA). The PEP and HIO Guidance explains a reporting entity’s obligations in relation to determining who is PEP, HIO or person related to or closely associated with them. The guidance will apply to both foreign and domestic PEPs, unless otherwise specified.
There are also RE sector-specific PEP and HIO requirements, which can be found in the further guidance published. The account-based REs guidance applies to FEs, securities dealers and casinos. The non-account-based REs guidance will apply to accountants, agents of the Crown, British Columbia notaries, dealers in precious metals and precious stones, real estate developers, brokers and sales representatives, money services businesses (“MSBs”) and foreign money services businesses (“FMSBs”).
Both the account-based guidance and non-account-based guidance include annexes which outline when various REs must make a PEP or HIO determination, establish the source of funds, source of virtual currency and source of wealth, and retain PEP and HIO records. Both of these guidance pieces also provide various exemptions for making a PEP or HIO determination.
Life insurance companies, brokers and agents are also non-account-based REs. However, they have specific PEP and HIO requirements which can be found in the applicable guidance that was recently updated in February 2021. They do not need to make a PEP or HIO determination when they are dealing in reinsurance. Life insurance companies, brokers and agents who offer loans or prepaid products to the public are required to follow the FE guidance when engaged in such activities.
Business Relationship Guidance
The Business Relationship Guidance outlines when REs enter into a “business relationship” with a client, thereby triggering related obligations under the PCMLTFA and its Regulations. This guidance was also recently updated from the prior 2017 guidance on business relationships. One notable change is that real estate developers, brokers and sales representatives will now enter into a business relationship with a client the first time they are required to verify the client’s identity. In addition, MSBs and FMSBs will now enter into a business relationship if they enter into a service agreement with an entity to provide services such as remitting or transmitting funds through an electronic funds transfer network or dealing in virtual currencies. The updated Business Relationship Guidance also provides specific circumstances where a business relationship is not created.
Once a business relationship has been entered into, the RE must keep a record of the purpose and intended nature of the business relationship. In addition, the Business Relationship Guidance notes other best practices, such as keeping records which describe the business dealings with a client and including information that would help the RE anticipate the types of transactions and activities the client may conduct. This information can then be used by the RE to identify unusual or suspicious transactions while conducting their ongoing monitoring. Business relationship records must be retained for five years from the day they were created.
Ongoing Monitoring Guidance
The Ongoing Monitoring Guidance provides information relating to the ongoing monitoring requirements under the PCMLTFA and its Regulations, which apply to all REs. The updated guidance provides that insurance companies, brokers and agents will not have to conduct ongoing monitoring when dealing in reinsurance.
Coming into Force
The above guidance will come into force on June 1, 2021.
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