Canada’s draft regulations to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act propose more flexible client identification procedures and recognize digital authentication, two changes that will facilitate digital commerce. The draft regulations were released on June 4, 2015 for a 60-day comment period, and can be found here.
What You Need to Know
The most significant changes include:
- a more flexible client identification regime; the recognition of digital authentication;
- the apparent rejection of anticipated prescribed prepaid product rules in favour of requiring risk assessments to consider new technologies; and
- the implementation of the domestic politically exposed persons regime that was introduced in Bill C-31.
The draft regulations do not include anticipated rules to implement the dealing in the virtual currencies regime, which was introduced in Bill C-31.
Under the proposed rules, existing client identification procedures would be replaced with a regime that, among other things, permits identification solely by reference to certain original government-issued photo identification, or a government identification product that has yet to be released. The regime would also permit identification by reference to information from two separate reliable sources: one would provide client name and address; the second would provide client name and birth date. If the rules are enacted, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) would provide guidance on what constitutes acceptable information from a reliable source—this approach provides FINTRAC with flexibility to permit new identification products, including those in electronic formats, as they are developed.
The proposed regulations also provide a definition of "signature" that includes an electronic signature or other information in electronic form that is created or adopted by the reporting entity and which is accepted by the reporting entity as being unique to that client. In adopting this definition, the Government is deferring to reporting entities to decide what constitutes an electronic signature, based on the risk tolerance of the reporting entity. This proposed amendment will assist reporting entities to satisfy requirements to obtain signature cards when opening accounts online or through mobile applications, and a related amendment will permit reporting entities to rely on the digital signature as a means of recognizing the identity of a client for future products or services.
Apparently in lieu of prescribing thresholds for prepaid products, the Government has taken a broader approach through a proposed requirement that reporting entities expressly address new technologies in their risk assessment analyses. New technologies would reasonably encompass prepaid cards and virtual currencies. The new technologies proposal does not preclude future regulations addressing prepaid cards specifically.
Politically Exposed Domestic Persons
The draft regulations extend the politically exposed foreign persons determination requirements to politically exposed domestic persons, heads of international organizations and designated family members thereof. Reporting entities are also required to determine whether their clients in certain circumstances are "closely associated with" such persons. No definition of "closely associated with" is provided, and it will be difficult for reporting entities to understand their obligations in this regard in the absence of very clear FINTRAC guidance.
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