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The final amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) were issued on January 31, 2013, following the published draft amendments to the PCMLTFR on October 13, 2012.
These amendments impact the anti-money laundering (AML) obligations of the following entities:
The amendments are effective February 1, 2014. By that date, reporting entities will need to update their policies and procedures, processes, systems, training program and the risk based approach documentation to reflect the new standards.
The new amendments are meant to address deficiencies that were noted in Canada’s last mutual evaluation conducted by the international standard setting body for AML/ATF activities, the Financial Action Task Force (FATF), in 2008. Generally, the new standard addresses the following areas:
The new amendments provide clarifications to the CDD provisions and define circumstances on when and how CDD measures should be prescribed. The term “business relationship” is introduced that defines circumstances of when CDD should be applied. The emphasis here is not only on clients with accounts but also on clients’ transactions and activities in which identification is required.
The new regulation also defines what “ongoing monitoring” is to include. The requirement here is to periodically monitor business relationships where you are required to identify the client as prescribed in the regulations. The objective here is to detect reportable transactions, keep client information up to date, reassess the risk level of the client’s transactions and activities and determine if the transactions or activities are in line with what is known about the client.
In addition, CDD measures also include keeping a record of the purpose and intended nature of the business relationship. The new standard also clarifies that there will be no exceptions to conduct CDD measures when it involves transactions or activities that give rise to a suspicion.
The new regulations are focused on taking a risk based approach in regards to applying EDD measures for high risk customers, activities or transactions in relation to the risk assessment. This is evident throughout the new amendment and where the compliance program is defined. The measures include keeping client information up to date and applying enhanced ongoing monitoring of business relationships for the purposes of detecting reportable transactions.
This requirement is linked to CDD measures where ongoing monitoring of a business relationship is to be applied as a standard requirement in prescribed circumstances. Where it is found that the risk level of the client’s transactions or activities for money laundering or terrorist activity is high, based on the ongoing monitoring, EDD measures are to apply. The idea is to ensure that reportable entities are adequately identifying their customers, understand their customer’s activities and are applying a risk based approach to their customer’s activities.
The requirements around beneficial ownership have been adjusted to include obtaining beneficial ownership information on trusts relating to the trustees, beneficiaries and settlors of the trust. The term “reasonable measures” no longer applies when it comes to confirming beneficial ownership where now reportable entities must obtain and confirm the prescribe information on beneficial ownership.
The new standard will also require reportable entities to obtain information establishing the ownership, control and structure of the entity and to confirm the accuracy of the information obtained, in which the entity must keep a record of the information and the measures taken to confirm the accuracy of that information.
Where entities are unable to obtain beneficial ownership information, they are required to ascertain the identity of the most senior managing officer and treat that customer as high risk where EDD measures is to be applied.
See our blog on Draft Anti-Money Laundering Regulation Amendments Released For Comment, dated October 19, 2012, for a full description of the changes and their implications.
1 There are two main changes from the draft amendments. The first has to do with keeping information up to date in regards to a business relationship and the second deals with exceptions regarding DRIPs that would not impact the majority that would apply.
Related Topics:Anti-Money Laundering
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