Vol. 151, No. 12 — June 14, 2017

Registration

SOR/2017-115 June 2, 2017

PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT

Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2016 (Transitional Provision)

P.C. 2017-574 June 2, 2017

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 73(1) (see footnote a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (see footnote b), makes the annexed Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2016 (Transitional Provision).

Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2016 (Transitional Provision)

Amendment

1 Section 124 of the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2016 (see footnote 1) is amended by replacing “the first anniversary of that day” with “January 23, 2018”.

Coming into Force

2 These Regulations come into force on the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Reporting entities require a longer transition period to prepare to comply with the dual-method identity verification requirements introduced through the Regulations Amending Certain Regulations Made under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2016 (the Regulations), which were made by the Governor in Council on June 17, 2016. The Regulations require amendment to extend the duration of the transitional period.

Background

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2016 (the Act) and its regulations apply to designated financial and non-financial entities (known as “reporting entities”), that provide access to the financial system and may therefore be susceptible to abuse by criminals seeking to integrate the proceeds of their crimes into the legitimate economy.

Among other things, these amendments updated the existing list of methods that reporting entities must use to verify the identity of their clients. The new methods allow for a broader range of reliable and independent sources to be used. In particular, the amendments identify the specific types of sources that are deemed reliable enough to be used on a standalone basis (e.g. government-issued photo identification documents), and broadly allow other types of sources (e.g. a notice of assessment issued by the Canada Revenue Agency) that are reliable and independent to be referred to on a dual-method basis (i.e. using a combination of two sources to verify identifying information).

A transitional period during which either the previous identity verification methods or the new methods could be used was provided from June 30, 2016, to June 30, 2017. And, on June 17, 2016, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) published guidance on the dual-methods that could be considered under these new provisions.

Following the publication of this guidance, some reporting entities sought clarifications on the interpretation of the new requirements and their implementation of the changes was therefore delayed. On January 23, 2017, FINTRAC provided clarification on how to interpret the new requirements, which was needed in order for reporting entities to begin preparing to comply with them. However, at this point, half of the transitional period had already elapsed. Reporting entities require the full year to implement the changes and to be in a position to fully comply with the new requirements.

Objectives

The objective of this amendment is to extend the transitional period to January 23, 2018, allowing for a year from the date on which the stakeholders received clarification on the dual-method and giving them adequate time to operationalize and apply the new requirements (e.g. update their internal procedures and IM/IT systems).

Description

This amendment extends the transitional period in the Regulations for the regulatory requirements that apply to the methods used by reporting entities to ascertain the identity of their clients, from June 30, 2017, to January 23, 2018 (an additional seven months).

“One-for-One” Rule

This amendment does not impose any new regulatory requirements, nor does it amend any existing regulatory requirements. Accordingly, there is no change in the level of administrative burden or compliance burden currently experienced by businesses; therefore, the “One-for-One” Rule does not apply.

Small business lens

The small business lens does not apply to this amendment, as there are no costs to small business.

Consultation

Reporting entities were extensively consulted on the development of the Regulations, prior to their being made on June 17, 2016. During the transitional period, the Canadian Bankers Association (CBA), on behalf of the financial sector, sought clarifications on how to interpret and implement the new methods for identity verification. Clarification was provided on January 23, 2017, after which the CBA expressed concern that there was not enough time left in the transitional period for reporting entities to fully prepare to operationalize the new requirements. This amendment addresses this concern by providing more time for reporting entities to adapt their internal tools, procedures and policies based on the clarified measures. Given that this amendment is relieving in nature, it is anticipated that all reporting entities will be supportive of it.

Rationale

This amendment to the Regulations is needed to ensure that reporting entities are in a position to comply with the regulatory requirements concerning identity verification methods. Given that clarification on how to interpret these requirements was provided on January 23, 2017, reporting entities require additional time to operationalize the changes. The policy intent for the original transitional period was to provide stakeholders with one year to prepare for the coming into force of the new methods. Extending the duration of the transitional period to January 23, 2018 is in line with this intent.

There are no additional impacts, or costs that would result from this amendment.

Implementation, enforcement and service standards

The regulatory amendment comes into force upon registration. FINTRAC has already issued necessary guidance on its website for the measures for which the transitional period applies.

Contact

Lisa Pezzack
Director
Financial Systems Division
Financial Sector Policy Branch
Department of Finance
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Email: fin.fc-cf.fin@canada.ca