Subsequent to the publication of this article, the June 14, 2017 Canada Gazette reported that the transitional period for the new identity verification requirements has been extended to January 23, 2018

Financial institutions, real estate firms and other qualifying entities should be ready to comply with the amended AML regulations, effective June 17 and 30, 2017, respectively.

On June 17, 2016, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) was amended to include, amongst other amendments, the new identity verification provisions, and the determination and treatment of the expanded definition of Politically Exposed Persons (PEP).

The purpose of this brief is to reiterate the customer identity and politically exposed person provisions as the changes significantly impact the efficiency of customer onboarding and monitoring of existing customers in a digital economy.

The brief also describes how our digital solutions can transform your customer onboarding process while ensuring seamless compliance with the amended regulations, and at significantly reduced cost.

1) Verification methods for customer identity

On March 23, 2017, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) issued a clarification that the end of the one-year transition period on the new rules for determining the identity of customers is June 30, 2017 (previously, June 17, 2017)

There are three methods to verify customer identity from the information provided by the customer:

• An original government issued and a current photo ID with a unique identifier number;
• Credit file with a trade line in existence for at least three years; and,
• The dual source method i.e. information confirming from any two of the following reliable and independent sources, a customer’s:
• Name and date of birth;
• Name and address; and
• Name and confirmation that the customer has a deposit account, credit card or loan with a financial institution.

Securefact Digital Solution

SIDni™ (Secure Identification Network for Individuals) provides instant digital identity verification of individual name, address, and date of birth against multiple authoritative databases to ensure higher ID verification rate, enabling customer-centric account onboarding. The solution is currently being used by some of Canada’s tier-one financial institutions. Here’s a brief video on how the solution works.

2) Determination and treatment of Politically Exposed Persons (PEPs)

The new AML regulations on politically exposed persons comes into effect on June 17, 2017. Briefly, the amended PCMLTFA expands the requirements that currently apply to foreign PEPs to include domestic PEPs as well as the heads of international organizations or family members or close associates of such persons.

Therefore, qualifying entities are required to take reasonable measures at account opening to determine whether the customer falls within this expanded definition of a PEP.

Moreover, qualifying entities are also required to develop policies and procedures to periodically monitor existing customers and determine if they subsequently fall within the PEP definition. Such policies and procedures will include enhanced due diligence measures as part of the AML risk assessment process.

While questions remain on what is regarded as a close associate and when a domestic PEP is considered for enhanced due diligence measures, qualifying entities must demonstrate with documentation that meets regulatory scrutiny on the reasonable measures undertaken for new and existing customers.

Securefact Digital Solution

SIDni™ is incorporating global watch list filtering and sanctions compliance not only to meet the requirements of the expanded PEP definition of the PCMLTFA, but also comply with the requirements of the USA Patriot Act, US Office of Foreign Assets Control (OFAC) and the 4th EU Money Laundering Directive. These robust databases of high-risk individuals and entities enable our clients to fortify screening in the identity verification process with sanctions data.

Next steps

In preparation for the FINTRAC compliance dates for June 2017, this is an opportune time for qualifying entities to evaluate their current individual identity, and PEP determination policies and procedures, notwithstanding the extensive record-keeping obligations for these provisions

It’s also important to consider the use of proven technology solutions that can transform the customer onboarding process while providing robust assurance of complying with the extensive requirements of these amended provisions of the law.

Our industry-proven KYC digital solutions have been built by our team of financial services, risk management, technology and AML regulatory subject matter experts. Furthermore, the solutions have been independently reviewed by a leading law firm specializing in practical implementation of the PCMLTFA, and are tried and tested by leading financial institutions and Fintechs in Canada.

Contact us to learn more and to have a more in depth conversation.