Advisors will need to pay closer attention to anti-money laundering rules

By Alain Thériault | September 19 2013 07:45PM

In 2014 the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) – the government agency responsible for tracking money launderers – will have the power to examine client-advisor relationships more closely.
According to Jean-François Lefebvre, an independent consultant and anti-money laundering specialist who worked at FINTRAC for seven years, this tightening will result in more frequent and more stringent checks. FINTRAC will have the right to determine if advisors are paying sufficiently close attention to their clients’ transactions.

“The changes will force insurers, MGAs, and advisors to adjust their compliance programs,” commented Lefebvre in an interview with The Insurance and Investment Journal. The Ministry of Finance has said that the changes would have a limited impact in the industry but, in my opinion, that is not going to be the case. There will be a significant impact,” predicts Lefebvre.

Overall, he says that the various players in the industry will have to know more about their clients, and they will have to conduct more detailed follow-ups. “The new rules will also put more of an emphasis on continuous monitoring. They will need to be familiar with not only the clients who are at risk, but all of their customers,” says Lefebvre.

The guidelines, which are to be published this fall, will also focus on the concept of what constitutes a business relationship. It is at this level that additional monitoring will be required. “Canada has received bad grades on its guidelines in the fight against money laundering,” comments Lefebvre.

In his work as a consultant, Lefebvre is called in to work with casinos across Canada.”There were large penalties in this sector. In terms of life insurance, there has not been as much of an emphasis, but it is important to know that the possibility exists and that the Agency is conducting more and more checks in the financial services industry,” he warns.

Lefebvre suggests that advisors pay attention to any transaction which may seem unusual for their customers. He also reminds advisors that they have an obligation to report suspicious transactions.

The changes in detail

This fall, FINTRAC will publish the new guidelines that will change how the Proceeds of Crime (Money Laundering) and Terrorist Financing Act is applied. In February, this will result in tighter rules as a result of the Regulations

Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (SOR/2013-15).
On its web site, the agency says that the amendments have been approved. These changes which affect “the obligations of reporting entities” remain unclear, but will be specified at a later date. “Updated information about the recent changes to reporting entity obligations will be available in the fall of 2013,” reads the FINTRAC web site. These changes were recommended after a consultation period that began in October 2012.

Among the changes, FINTRAC has clarified the scope of what constitutes a “business relationship.” Accounts opened by mutual fund dealers are excluded from the definition where there are reasonable grounds to believe that client’s identity has been ascertained by a securities dealer. As for existing accounts, they are also subject to the business relationship definition.

In addition, FINTRAC has clarified the definition of “ongoing monitoring”, saying that information about the purpose and nature of a business relationship must be maintained in accordance with a risk-based approach. In practice, ongoing monitoring involves periodically checking for suspicious transactions, and reporting and updating information on the client’s identity. The law has kept the threshold at which a regular transaction must be declared at $10,000. But there’s no such threshold for a suspicious transaction, that must be reported whatever the amount is.

Finally, financial institutions are exempt from the requirements when it is a question of a “dividend reinvestment plan or a distribution reinvestment plan, including a plan that permits purchases of additional shares or units by the member with contributions other than the dividends or distributions paid by the sponsor of the plan.” This applies so long as the sponsor of the plan is an entity whose shares or units are traded on a Canadian stock exchange, and operates in a country that is a member of the Financial Action Task Force. This change is meant to reduce the law’s application to accounts where there is a low risk of money laundering.