The board of the Investment Dealers Association of Canada has approved a new rule that will require firms to verify the identity of corporate accountholders.

The IDA approved the new rule at a board meeting on Sunday during its annual conference in St. Andrews by-the-Sea, N.B.

The rule is aimed to attack the use of offshore corporate veils to hide the identity of accountholders, a technique that can be used to launder illicit money. And, they come in response to updates recommendations published by the Organization for Economic Co-operation and Development Financial Action Task Force (FATF) on June 20.

The new policy will require IDA firms to identify and then verify the identity of the beneficial owner, when opening an initial account for a corporation or similar entity. Verification is to be completed as soon as is practicable, and at a maximum within six months. For existing accounts where the identities of beneficial owners are not known, firms will have one year after the implementation of the new rule to obtain the information.

The new rule provides an exemption for the accounts of financial institutions regulated in their home jurisdictions and their affiliates. However, the IDA may remove the exemption for financial institutions in jurisdictions found by the Government of Canada or international organizations of which Canada is a member to have deficient regulatory regimes. An exemption is also provided for publicly traded corporations, trusts and similar entities and their affiliates.

In October 2001, the IDA proposed changes to its know-your-client regulations that would have required firms to obtain beneficial owner information where possible, but would have permitted them to open accounts for which the information could not be obtained subject to special approval and account monitoring provisions.

These changes were withdrawn after various international bodies started calling for stricter standards, including the FATF and the Basel Committee for Banking Supervision.

“It has always been the IDA position to meet international standards on the disclosure of beneficial ownership of offshore accounts,” said Joe Oliver, president and CEO. “In light of the release of the FATF recommendations, we are acting immediately to ensure Canada stays at the forefront of compliance.”

The new policy will be sent to the securities commissions for approval following review and public comment.