The federal government is seeking to toughen Canada's laws that combat money laundering and terrorist financing with a series of reforms that aim to bolster reporting requirements, close gaps in the current regime and enhance compliance.
The Department of Finance Canada is proposing amendments to Canada's anti-money laundering (AML) and anti-terrorist financing legislation, designed to toughen the regime and to improve Canada's compliance with international standards ahead of an evaluation by the international Financial Action Task Force (FATF), which is slated for 2015–16.
The proposals would strengthen the legislation in this area; close gaps in Canada's regime; increase financial services firms' due diligence requirements; enhance information sharing; and improve compliance, monitoring and enforcement, according to a pre-publication of the proposed amendments in the Canada Gazette.
For example, the proposed amendments would: increase financial services firms' obligations to determine whether a client is a "politically exposed person"; repeal the exemption for reporting large cash transactions in the life insurance sector in which the source of funds is not easily identifiable; and require firms to keep records of "reasonable measures" they have taken to obtain required information about clients.
Other proposed amendments aim to ease the burden of complying with the regime. For example, one of the proposals would clarify that individual advisors employed by a securities dealer are not to be considered reporting entities in their own right.
"Therefore, although the brokers would be required to abide by the compliance program of their securities dealer employer, they would not be required to maintain their own compliance program," the proposal notes.
A regulatory impact analysis estimates that the changes will result in a small increase in compliance and administrative costs as firms will have to alter their procedures and policies. However, the amendments note that the changes build on existing requirements, "resulting in relatively small incremental compliance costs."
Also, many of the proposed amendments are intended to decrease the compliance burden. For example, firms would have more time — 30 days, up from 14 days — to determine whether a client is considered a "politically exposed person" under the law. Firms would also have increased flexibility to meet the requirements for verifying their clients' identities.
Once the proposed amendments are approved, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which will be responsible for enforcing the new obligations, will update its guidance to set out its expectations for how financial services firms' revised obligations are to be met. Furthermore, FINTRAC may undertake outreach activities to ensure firms are aware of the new obligations, which will then be included in its compliance exams.
The proposals are now out for a 60-day comment period. The Investment Industry Association of Canada will be drafting a submission through its AML working group.