Mastering the New PCMLTFA Client Identification and Domestic PEP Requirements 10:55 AM 12:10 PM Wednesday, October 26, 2016

Transcription

1 Mastering the New PCMLTFA Client Identification and Domestic PEP Requirements 10:55 AM 12:10 PM Wednesday, October 26, 2016 Jacqueline Shinfield, Partner, Blake, Cassels & Graydon LLP Jennifer Egelnick, Manager National AML Practice, NMP Eric Lachapelle, Principal Director, Desjardins

2 Jacqueline Shinfield, Partner, Blake, Cassels & Graydon, LLP

3 Currently Permitted Methods New Identity Verification Methods introduced on June 30, 2016 More flexible and principles-based But many prescriptive requirements remain 3

4 Three New Methods Photo Identification Canadian Credit File Dual Process Method New Government Source Method: permitted by legislation but currently not practical 4

5 Canadian Credit File A standalone and simple method for non-face-to-face identification Must match the name, address and date of birth provided by the client Two key requirements: Canadian credit file At least 3 years of history Not available for all clients: Young Canadians New Immigrants 5

6 Dual Process Method Use two out of three permitted identification methods: Refer to information from a reliable source that contains customer name and address Refer to information from a reliable source that contains customer name and date of birth Refer to information that contains customer name and that confirms that the customer has an account (deposit, credit card, or other loan account) with a financial entity 6

7 Dual Process Method Acceptable Sources: Choice of sources largely left to financial institutions Examples: Canadian governments, crown corporations, other financial institutions, utility companies, etc. Must be reliable: well-known, reputable and trustworthy for ID verification Must be independent: can t rely on the same source (different documents from the same source will not be acceptable) 7

8 Dual Process Method Restrictions on the form of documents from reliable sources: Must be Original Document must come from the issuer directly to the client Original paper copy that the client receives from the issuer Original electronic copy that the client downloads from the issuer s website Original electronic copy that the client receives by from the issuer Original electronic copy (downloaded/ ed from the issuer) shown on the client s mobile device A print-out of original electronic copy (downloaded/ ed from the issuer) shown on the client s mobile device Scanned copy of the original document 8

9 Dual Process Method Challenges for determining whether a document is original vs scanned What is a reasonable: Visual or automated inspection of the document? Relying on employee judgment? Asking the client? Developing and documenting a policy? 9

10 Dual Process Method Restrictions on the form of documents from reliable sources: Must be Valid Must appear legitimate/authentic No alterations No information redacted Must be current Not expired (if there is an expiry date) Most recent copy (if there is no expiry date) Same challenges for case-by-case determination 10

11 Photo Identification Rely on government-issued photo identification to confirm the client s name and photograph Government of Canada Government of a Canadian province Foreign government Canadian or foreign municipal government Records: Client identification information Type of document Document number Jurisdiction and country of issue Expiry date (if any) Date of verification Only face-to-face Use of online or video conference application not permitted Use of digitally scanned image of the photo identification not permitted Limited or no accommodation of emerging new technology for ascertaining identity Remember exception re: Access Basic Banking Services Regulations. 11

12 Reliance on Agents Reliance on agent to ascertain a person s identity permitted NEW: Reliance on past identity verification by agent permitted Agent ascertained a person s identity in its own capacity (agent need not be a reporting entity) Agent acted as agent for a reporting entity under the PCMLTFA pursuant to a written agreement Reliance permitted only if: Written agreement with agent Obtain from the agent all information that the agent has used to ascertain a person s identity Satisfied that such information is valid and current Agent conducted identification in full compliance with the PCMLTFA Other permitted methods: Reliance on certain eligible affiliates Reliance on credit union centrals and other credit unions within the same central 12

13 Jennifer Egelnick Manager National AML Practice, NMP 13

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15 New requirement comes into effect June 17, 2017 Politically Exposed Domestic Person Definition: (Holds or held in the past 5 years) Governor general, lieutenant governor or head of government; member of the Senate or commons or legislature; deputy minister or equivalent; ambassador or attaché/counselor; military officer (general+); president of a wholly owned Canadian/provincial corporation; head of a government agency; mayor etc. Head of an international organization Definition: Means the head of an international organization. Further guidance is expected from FINTRAC. Close Associate of the person Definition: business and personal relationship. Further guidance is expected from FINTRAC. 15

16 Transactional Based Entities (Financial Entity, Life Insurance, MSB) Transactions of $100,000 or more) Foreign PEPs, Immediate Family, Close Associates Default to: High Risk (AND Implement Special Measures) Record office or position of the PEP, record the date of the determination Take reasonable measures to establish Source of Funds that have been used for the transaction A member of senior management shall review the transaction. Record the name of the senior officer who approved the transaction Domestic PEPs, HIOs, Immediate Family, Close Associates Apply Risk Based Approach to determine level of appropriate risk Collect information outlined above If you are able to determine that a domestic PEP is not high risk, ensure documentation is completed and maintained to evidence the decision. If a high risk determination is made apply the special measures outlined for high risk clients. 16

17 Account Based Entities (Financial Entity, Securities Dealer) Account opening, $100K or more Transactions, and Periodic Monitoring Foreign PEPs, Immediate Family, Close Associates Default to: High Risk (AND Implement Special Measures) Take reasonable measures to establish source of Funds that have been, will be or are expected to be deposited in the account in question; Obtain the approval of senior management to keep the account open; Conduct enhanced ongoing monitoring of the activities in respect of the account for the purpose of detecting transactions that are required to be reported to the Centre under section 7 of the Act. Domestic PEPs, HIOs, Immediate Family, Close Associates Apply Risk Based Approach to determine level of appropriate risk Collect information outlined above If you are able to determine that a domestic PEP is not high risk, ensure documentation is completed and maintained to evidence the decision. If a high risk determination is made apply the special measures outlined for high risk clients. 17

18 Determination and Approval 14 days extended to 30 days Duration Foreign: Once a PEP always a PEP Domestic: 5 years after holding a prescribed position Database Scan Periodically determine whether existing account holders are PEPs, where the determination has not already been made. Integrate into policies and procedures and training Document Reasonable Measures If a financial entity or any of its employees or officers detects a fact that could constitute reasonable grounds to suspect that a person who is an existing account holder is a PEP take reasonable measures to determine whether the account holder is such a person. (e.g. Source of Funds and/or Beneficial Ownership) 18

19 Takeaways Update Policies & Procedures, and Risk Assessment (Recommended that an RBA follows FINTRAC Guidance: Identify processes for periodic scanning and ongoing monitoring Assess Domestic PEPs against your RBA Document Reasonable Measures taken to open or maintain accounts Implement, Test, Evaluate 19

20 Eric Lachapelle Principal Director, Desjardins 20

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22 Polling question : How close is your FI to full implementation of the new requirements? A) All changes are in place and operational B) Most changes are in place C) Implementation is underway, but changes are outstanding D) Changes are known but implementation has not been started E) Are there new requirements? 22

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24 ID Requirements Challenges include: Implementation, procedural changes, training and awareness across all business lines The implementation of IT systems adjustments which can be time consuming and expensive Ensuring that the client experience does not suffer as a result of the changes The Desjardins Approach Promoting the changes and ensuring that front lines business functions are aware of the advantages and delays of the changes A phased roll out of the new ID verification methods, ensuring that the most commonly used methods are in place on day one. Gradual roll out of other verification methods 24

25 Politically Exposed Persons Challenges include: Working with external information providers to ensure that their products meet your requirements Unclear definitions which are yet to be clarified by the regulator and/or government Significant increase in the number of alerts Scanning of pre-existing customers The Desjardins Approach Pre-empting which changes are likely to come into place and initiating a project ahead of time Early scanning of all customers to identify which customers may be affected Open and earnest communication with industry peers, external advisors and governmental bodies 25

26 Takeaways Your compliance team may not be the most popular. When regulatory changes benefit other departments, let them know. When possible, roll out changes in different stages. A slice and dice approach. Stay one step ahead. Assess how you can prepare yourself for potential changes in regulatory requirements. Maintain open contact with regulators, industry peers and any expertise which can benefit your compliance department. INFO 26