The Investment Industry Regulatory Organization of Canada has published its upgraded anti-money-laundering (AML) compliance guide for member firms to assist them in conforming to expanded federal and regulatory requirements regarding money laundering and terrorist financing.

The guide, available on IIROC’s website, replaces a 2002 guide produced by the regulator’s predecessor, the Investment Dealers Association of Canada. The new guide includes the tougher rules and regulations that have been put in place over the past decade.

The most recent revision includes: the requirement to conduct an AML risk assessment, which requires an understanding of money laundering and terrorist-financing risks and techniques; the identification of “politically exposed foreign persons” and implementation of special procedures for heightened monitoring of their accounts; and an increase in the identity-verification procedures for clients who are not seen face to face.

(A PEFP is defined as someone who is, or was, a government official, high-ranking military official, president of a state-owned entity, judge or leader of a political party in another country.)

The IIROC guide says member firms should already have much of the structure in place to deal with the requirement to monitor for money laundering and terrorist financing.

Says Judy Long, IIROC’s director of business conduct compliance: “The risk assessments were initially due to be completed by June 2008, with a review to be conducted every two years thereafter. This means firms should have already performed their first review, which has to incorporate a complete analysis of their AML compliance regime.”

Adds Long: “IIROC’s business conduct compliance staff will be testing for evidence of these reviews in the course of their examinations, and will convey deficiencies to [the Financial Transactions and Reports Ana-lysis Centre of Canada].”

The IIROC guide states that a firm must designate a compliance officer responsible for its AML program to act as the central contact for communications with FINTRAC and other agencies. Bigger firms might have an AML/CFT (countering the financing of terrorism) department, but are still required to name a specific individual responsible for it.

A firm’s AML/CFT program must include procedures setting forth the systems and controls on which the firm relies, both to prevent and detect money laundering and to comply with the legislative and regulatory requirements and guidance issued by FINTRAC and others.

These policies and procedures must cover: customer due diligence, which is different although similar to know-your-client procedures; procedures intended to protect the firm and its employees from inadvertently assisting in money-laundering activities, such as those related to deposits of currency and cash equivalents; procedures to monitor account activity for unusual or suspicious transactions or attempted suspicious transactions, then investigate such transactions to determine if they must be reported to FINTRAC, and also report those transactions that give reasonable grounds for suspicion; and supplementary procedures implemented for those types of transactions or accounts deemed by the firm to pose a heightened risk for money-laundering activity.

As well, the IIROC guide says the AML procedures of every dealer should be reviewed regularly and updated when required because of legal/regulatory or business/operational changes such as: additions or amendments to existing AML rules and regulations; significant changes to the firm’s business; and business process or technology changes affecting the way AML/CFT procedures are completed or records are stored.

One example of a changing legal/regulatory requirement given in the guide is the addition of special sanction measures by Ottawa to require checking of listed persons under regulations concerning Iran, North Korea, Burma and Zimbabwe. A full check might be appropriate, for example, for a large dealer that opens many accounts and does periodic checks of all client names against lists of PEFPs.

The IIROC guide says dealers have new and greater challenges to comply with legal changes and identifying PEFPs.

Says Long: “Recent legislative changes have increased the time and resources that dealers need to apply in order to deal with ongoing training, PEFP determination and associated checks.” IE