The Investment Dealers Association has issued a notice regarding the implementation of suspicious transaction reporting rules. The new rules, taking effect Nov. 8, require reporting of suspicious transactions to the Financial Transactions and Reports Analysis Centre of Canada, a new agency.

Further regulations will be published over the next several months, including amendments to the existing know-your-client regulations and regulations on reporting to FINTRAC of large cash transactions. Members will be notified as new regulations and amendments come into affect. The notice provides a brief
summary of the new regulation and recommendations to assist firms in
identifying suspicious transactions.

Members and/or their employees required to report suspicious transactions to FINTRAC are protected from criminal and civil legal proceedings for doing so in good faith. Failure to comply with the reporting requirements can lead to criminal charges, and knowing failure to report a suspicious transaction is punishable by up to five years imprisonment, a maximum fine of $2 million or both. An employee cannot be convicted if the transaction has been reported to his or her superior.

It is also an offence to disclose that a suspicious transaction report has been made, or to disclose the contents of the report, with the intent to prejudice a criminal investigation, whether or not such an investigation has begun. This offence, sometimes called “tipping off,” is punishable by up to two years imprisonment.

The IDA suggests that firms implement a compliance regime including a responsible partner, officer or director; appoint an individual to be responsible for the implementation of the regime; develop and apply compliance policies and procedures; review those policies and procedures as often as is necessary to test their effectiveness; and, an on-going employee compliance training program.

It also recommends centralizing the reporting function under the designated compliance officer; and conducting an internal risk assessment to identify areas of the greatest risk for use by money launderers.

The IDA also notes that recent changes to suitability rules may hamper firms’ surveillance efforts. Recent changes to the suitability requirements will permit firms to open accounts on a suitability-exempt basis. In some cases, account opening and operation may be entirely online, with no person-to-person contact. The client identification and verification regulations will continue to cover such accounts, but the lack of a
suitability obligation will remove the necessity for members to collect financial information such as income and net worth.

“Many of the FINTRAC guidelines note that transactions may be suspicious in relation to the clientÕs financial ability and normal investment practice. Where a member has reduced information about a client1s financial ability and/or less direct contact with the client, it will have to develop means of transaction
surveillance to identify patterns of account activity requiring review, and then supplement its knowledge of the client through other means to determine whether the transactions are suspicious in relation to the clientÕs financial ability, business or other client details.”

The IDA says that FINTRAC is aware of the educational needs in the financial services industry and has begun a project to develop educational material. The Compliance and Legal Section of the IDA will be including a session on money laundering and suspicious transaction reporting as part of its annual seminar for compliance officers in Toronto on December 4, 2001.