There have been two recent consultation documents issued by the Department of Finance regarding proposed changes to Canada’s Anti-Money Laundering and Terrorist Financing Regime. Credit Union Central of Canada (Canadian Central) prepared submissions with feedback from both credit unions and Centrals in response to both consultation documents (issued in November and December 2011).
Concurrently, the Senate Committee on Banking, Trade and Commerce is conducting its five year review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act
(PC(ML)TFA). As part of this review the Committee hears from witnesses including government officials, regulators, law enforcement as well as reporting entities. As such, Canadian Central appeared before the Committee and took the opportunity to raise concerns on behalf of the credit union system. (Click here to read the presentation
In its presentation, Canadian Central highlighted the disproportionate effect that the “one size fits all” approach to regulation has on smaller entities such as credit unions. To support this position, attention was drawn to the findings of the Government’s Red Tape Reduction Commission’s report – Cutting Red Tape….freeing business to grow - which recommends that new regulations be viewed by the government through a small business lens to ensure that they do not impose competitive disadvantages for smaller organizations.
Particular areas of concern noted in the presentation include the expected increase in administrative burden that will result from the additional requirements, the need for clarity on what exactly the proposed changes mean as well as concern with a potential need for automation of processes in an effort to mitigate a potential increase in the risk of non-compliance.
Proposed changes that are expected to have the greatest impact on credit unions:
- Credit unions will need to be able to monitor their members from a “business relationship” perspective which is defined as arising “when a reporting entity conducts any financial activity or transaction in respect of which it is required to keep a record under the PCMLTFR”.
- Ongoing monitoring of “business relationships” will be required for all clients and not just those that were previously identified as posing a higher risk for money laundering, such as Politically Exposed Foreign Persons.
- Reporting entities will be required to monitor clients, transactions and business relationships against its record of intended use (see below).
“Politically Exposed Foreign Persons”
- The definition of a Politically Exposed Foreign Person (PEFP) is to be amended to include “close associates”, which will vastly increase the number of individuals to be identified and tracked.
- PEFP determinations will need to be made for all members, not just for new account holders or those that have been previously categorized as “high risk” due to some other factor such as the products/services used.
Increased Record Keeping
“Record of Intended Use”
- Presently financial institutions are required to record the “intended use” of an account at its opening and the purpose of certain prescribed transactions, such as large cash transactions (of $10,000 or more). The proposed change will require that this information (intended use) be recorded for the “business relationship” as well.
- Additional record keeping requirements include that “reasonable measures” are documented such as effort taken when determining beneficial ownership.
- The proposed changes include that the $10,000 threshold be eliminated for international EFT reporting thereby requiring that all international EFTs be reported regardless of dollar value.
- The definition of a “single transaction” is to be amended to include “all transactions” completed within a 24 hour period. This will mean that all transactions will have to be monitored, not just large cash transactions and wire transfers, for purposes of reporting to FINTRAC those that are equal to or cumulatively exceed $10,000.
Suspicious Transaction Reporting
- The proposed changes clarify that reporting entities are expected to file suspicious transaction reports for activities that support transactions (i.e. account applications) and not just for completed and attempted transactions.
Increased Customer Due Diligence
- The proposed changes will require that credit unions ascertain the identity of customers who conduct transactions that give rise to a suspicion of money laundering or terrorist financing regardless of whether such transactions are covered by the exceptions to general customer identification, record-keeping and reporting requirements.
Following the consultation process and the five year review of the legislation, regulations will be drafted and published in the Canada Gazette Part 1 for further consultation. It is understood that these will be issued in the Fall of 2012. Final regulations will then be published in the Canada Gazette Part II. The new regulations are not expected to come into force until sometime in 2013.
Canadian Central will continue to monitor the Senate Committee hearings and will participate in further discussions with the Department of Finance to ensure that a small business lens is used during its assessment of the regulatory requirements of the AML regime. Once the regulations are issued in the Canada Gazette a submission will be prepared with feedback from the system.
The CUSOURCE on-line training program will be updated with the new requirements and available to credit unions once the regulations are finalized and well before they come into force. Additionally, free webinars will be held to provide credit unions with additional information as it becomes available.