The federal government is proposing to beef up the regulations used to fight money laundering and terrorist financing, which will increase financial firms’ due diligence obligations.

The Department of Finance Monday published a consultation paper setting out proposed changes to money laundering rules that aim to improve the identification of clients, in an effort to both strengthen the anti-money laundering regime, and improve Canada’s compliance with the global anti-money laundering standards (established by the Financial Action Task Force).

In a paper proposing the changes, the government notes that there are deficiencies with customer due diligence obligations that are imposed in Canada, which could weaken the ability of Canadian firms that must report suspicious transactions to detect and deter transactions related to money laundering and terrorist financing. “This could harm not only the reporting entities themselves, but the stability of Canada’s financial system as a whole,” it says.

Additionally, it notes that Canada is currently not in compliance with one of the FATF’s core recommendations regarding measures to ensure that financial institutions are adequately able to identify their customers when establishing business relations or carrying out occasional transactions.

The proposed regulatory amendments are intended to address those deficiencies by requiring firms to better identify customers and understand their businesses, which will thereby enable them to identify transactions and activities that are at greater risk for money laundering or terrorist financing. It will expand the application of certain obligations to include business relationships, expand the range of activities in which customer due diligence measures are required, and extend the scope of certain due diligence obligations.

The changes are also expected to enhance the ability of firms to take a risk-based approach to customers, products and activities and to comply with their obligations under the rules, which should permit a more balanced approach to compliance by giving firms greater scope and flexibility when complying with their obligations.

Comments on the proposed changes are due by December 16.