Securities dealers should get their reporting systems in order in advance of Canada’s new anti-money laundering regulations, compliance teams were told today at a seminar in Toronto.
On June 23, the final stage of the federal government’s plan to curb terrorist financing and money laundering will take affect. The new and improved Proceeds of Crime (Money Laundering) and Terrorist Financing Act is an attempt to bring Canadian legislation in line with the revised international standards of the Financial Action Task Force.
“It’s not something that you can, on June 23, just start doing,” said Mike Andrews, principal at A. Michael Andrews and Associates Ltd. and the lead presenter at today’s seminar, hosted by the Investment Funds Institute of Canada (IFIC). “There is some lead time required to prepare and implement.”
“There is new information that you have to collect, there are new records that you have to keep,” Andrews added. “So, you have to have a way to do all this.”
The biggest change to compliance regime requirements beginning June 23, is that they must be risk-based. “There is now an explicit requirement to conduct an assessment of the risk of money laundering and terrorist financing as it relates to your business,” said Andrews.
Also added to the regulations are new reporting requirements for attempted suspicious transactions. Under the current regime, only completed suspicious transactions are subject to regulation. Beginning June 23, firms will be required to report on any that are even attempted.
“You’re looking at where you might have a risk and where you might want to allocate more resources, based on higher risk,” said Joanne Taylor, a compliance associate at Brandes Investment Partners & Co.
“It’s hard to define what an attempted suspicious transaction is,” she added. “It may be more of a dealer issue when you are taking on a direct client. Someone walks in and doesn’t like the questions you‚re asking and walks away without investing.”
Andrews noted that fund managers and dealers are not required to identify a client if they can provide reasonable grounds to believe another securities dealer has already done so.
In the context of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the federal agency charged with detecting and deterring money laundering, the definition of securities dealers extends to both dealers and fund managers — even fund managers that don’t deal directly with clients.
Firms with foreign operations in a country that is not a FATF member must ensure that such subsidiaries meet all Canadian standards. As well, reasonable measures (which means, asking the person) must be taken to identify those who hold political or military positions of power in other countries before an account is opened.
Other regulation changes include: recording the intended use of an account upon opening; new identification processes for people opening new accounts who are not physically present — a credit bureau check or a guarantor is now needed; the time period to verify people or entities eligible to make transactions has been reduced to 30 days; and a firm’s compliance training program must now be documented.
The new regulations will affect each firm differently, depending on where its systems stand now. “There is no one-size fits all,” said Waqas Rana, vp and chief compliance officer at PFSL Investments Canada Ltd. “You have to look at your products, your customers, your operations. There is so much room in this regulation, and you need to interpret it based on what your firm is.”
Throughout the 1990s, the Canadian regulatory regime was criticized by the international community with regard to money laundering and terrorist financing. The new regulations stem from a 2005 review of the Act.