FINTRAC updates guidance on record keeping, client identification, beneficial ownership and correspondent banking

In March 2021, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) updated its guidance on (1) record keeping, (2) client identification, (3) beneficial ownership and (4) correspondent banking.

The updated guidance reflects the series of regulatory amendments made to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “PCMLTFA”) and regulations over the past few years, the majority of which will come into force on June 1, 2021. Our prior summaries of the regulatory amendments can be found here and here. The following are some notable changes to the various guidance documents.

Record Keeping and Client Identification

FINTRAC requires all reporting entities (“REs”) to keep certain account, transaction and client identification records, as well as verify the identity of persons and entities based on the type of transaction or activity a client is undertaking. FINTRAC’s guidance for record keeping and client identification have been updated for the following REs:

Below are some key changes to the record keeping requirements. REs will also be required to verify the identity of every person or entity involved in these transactions, as applicable.

VC Transactions: All REs will be required to keep a large virtual currency (VC) transaction record when receiving a VC amount of $10,000 or more.

A large VC transaction record should consist of information similar to what is currently required for large cash transaction records, including information regarding any persons or entities involved in the transaction, the date on which the VC was received, the type and amount of each VC transaction, reference numbers and transaction identifiers, all sending and receiving addresses, the exchange rates used and their source, and information regarding any accounts affected by the transaction (for example, an account that provides the funds).

Electronic Fund Transfers: Casinos, financial entities (“FEs”), money services businesses (“MSBs”) and foreign MSBs will be required to maintain records of electronic fund transfers (“EFTs”) of $1,000 or more. For the purposes of the PCMLTFA Regulations and in the case of SWIFT messages, EFTs are limited to SWIFT MT-103 and their equivalent.

Currently, entities are only required to keep EFT records that are initiated at the request of a client. The updated guidance extends this to EFTs initiated “at the request of a person or entity”. Furthermore, entities which are intermediaries when sending an international EFT of $1,000 or more, or are the final recipient of an international EFT of $1,000 or more must also abide by the EFT record keeping requirements.

Lastly, international EFTs and EFTs within Canada sent via a SWIFT MT-103 message or equivalent will be subject to the travel rule, which requires financial institutions to pass on certain information to the next financial institution a transaction is sent to.

VC Transfers and Exchange Transaction Tickets: FEs, MSBs and foreign MSBs will also be subject to record keeping requirements for VC transfers that are $1,000 or more. This will apply if the entity is transferring VC at the request of a person or entity, or is receiving VC for remittance to a beneficiary. The entity will also be subject to the travel rule when transferring VC. When receiving VC, an entity must take reasonable measures to ensure that the transfer includes the prescribed information.

FEs, MSBs and foreign MSBs will also be required to keep VC exchange transaction tickets where VC is exchanged for funds, funds are exchanged for VC or one VC is exchanged for another, regardless of the amount.

Casinos: Casinos must now keep a record of transactions made by their customers of $3,000 or more.

Financial Institutions: The updated guidance also requires FEs to keep records of prepaid payment product (“PPP”) account holders and authorized users, as well as PPP account transaction records. However, these record keeping requirements will not apply to a FE that is processing PPP payments on behalf of a merchant. Similar to credit card accounts, PPP accounts will be subject to identity verification requirements before they are activated.

Exceptions to VC record keeping and client identification requirements: If a RE receives or transfers VC as compensation for the validation of a transaction that is recorded in a distributed ledger, or the RE exchanges, transfers or receives a nominal amount of VC for the sole purpose of validating another transaction or a transfer of information, the RE does not need to:

  • Keep a record of a large VC transaction;
  • Keep a record of transfer of $1,000 or more in VC at the request of a person or entity;
  • Keep a record of receipt of $1,000 or more in VC for remittance to a beneficiary;
  • Keep a record of a VC exchange transaction ticket; or
  • Verify identity.

Beneficial Ownership

Currently, the PCMLTFA and its Regulations only require FEs, securities dealers, MSBs and life insurance companies to be subject to beneficial ownership requirements when verifying the identity of an entity. The updated guidance will require all REs to obtain information regarding beneficial owners of corporations, trusts and not-for-profit organizations. All REs will also have to keep records and take reasonable measures to confirm the accuracy of the beneficial ownership information they obtain.

Correspondent Banking Relationships

These relationships occur when an agreement or arrangement for the provision of services is made between a foreign financial institution and a Canadian financial entity. The current guidance cites banks, credit unions, caisses populaires and trust companies as examples of Canadian FEs that can enter into a correspondent banking relationship. The updated guidance has broadened this definition to include the following entities:

  • bank;
  • cooperative credit society;
  • credit union;
  • caisse populaire;
  • federally or provincially regulated trust or loan company;
  • unregulated trust company;
  • financial services cooperative;
  • life insurance company, or an entity that is a life insurance broker or agent, that offers loans or prepaid payment products to the public, or maintains accounts for these loans or prepaid payment products, other than:
    • loans made by the insurer to a policy holder if the insured person has a terminal illness that significantly reduces their life expectancy and the loan is secured by the value of an insurance policy;
    • loans made by the insurer to a policy holder for the sole purpose of funding the life insurance policy;
  • advance payments made by the insurer to a policy holder who is entitled to them;
  • credit union central, when it offers financial services to non-members, and
  • an agent of the Crown, when it accepts deposit liabilities while providing financial services to the public.

The updated guidance also notes that the correspondent banking relationship requirements do not apply to activities related to the processing of payments by credit card or PPP for a merchant.

Foreign Branches, Foreign Subsidiaries and Affiliates

FINTRAC also updated the foreign branches, foreign subsidiaries and affiliates requirements guidance by aligning its formatting with recently published guidance pieces. Accordingly, there are no significant changes to the contents of this guidance.

Coming into Force

These guidance pieces will come into force on June 1, 2021. FINTRAC has stated that it will “exercise flexibility in assessing and enforcing compliance with certain record keeping and reporting obligations related to the amended Regulations.” These flexible measures can be found on FINTRAC’s website. However, FINTRAC has also noted that the flexible measures will not apply to the new VC obligations, as it expects all REs to implement the VC related obligations, as applicable, starting on June 1, 2021. Accordingly, entities involved in VC transactions will want to ensure that they take appropriate measures in a timely manner to comply with these upcoming obligations.

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