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On June 25, 2019, amendments to the Canadian Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) were officially registered. These updates, largely taking effect on June 1, 2020, introduce several significant changes that regulated entities (REs) doing business in Canada must address to remain compliant.
The amendments include a wide range of changes, from enhanced customer due diligence (CDD) measures to expanded electronic fund transfer (EFT) requirements. In this article, we break down the key modifications and discuss how these changes impact REs operating in Canada.
One of the most impactful amendments relates to identity verification documents. Previously, acceptable identification had to be "original, valid, and current." However, this definition has been updated to "authentic, valid, and current." The change may seem minor, but it has significant implications. The new definition now permits document verification to be performed electronically, thereby legalizing the use of scanned or photocopied documents, which were explicitly prohibited under the prior regulation.
Despite being a founding member of the Financial Action Task Force (FATF), Canada's AML regime faced several deficiencies highlighted in its 2015-2016 mutual evaluation report. These gaps led Canada to be placed under an "enhanced follow-up process," requiring annual updates on progress.
A key deficiency noted by FATF was the lack of requirements for verifying a client's source of wealth. The new amendments address this by requiring REs to confirm the accuracy of Ultimate Beneficial Ownership (UBO) information, particularly when new information is provided or existing data is updated. The added focus on UBO verification is crucial for closing compliance gaps associated with complex ownership structures, often used for hiding money laundering activities.
The amendments also extend CDD requirements to other sectors. Money services businesses (MSBs) that deal in virtual currency, prepaid cards, or operate as foreign MSBs providing services in Canada are now considered REs and are subject to the same reporting requirements. Life insurance companies that issue loans are also included in the expanded definition of REs.
The new amendments make significant changes to EFT regulations. One notable addition is the requirement for REs to verify the identity of EFT beneficiaries when the transfer value exceeds CAD $1,000. Moreover, the definition of an EFT now includes domestic transfers as well as cross-border ones. Additionally, if multiple EFTs or cash transactions are sent to the same beneficiary within 24 hours and collectively exceed $10,000, these must now be reported.
The amendments also introduce updated standards for identity verification. Existing regulations provided for both single and dual-process methods. Under the new guidelines, verification using a single source—such as government-issued photo ID or a credit file—is still permissible, but credit files must now include information from more than one source and have been in existence for at least three years.
For the dual-source method, the credit file must be at least six months old, and the two sources used must be independent of each other. Furthermore, prepaid product account information can now be used as a valid source for dual-process verification. Another significant change is that REs can now rely on identification information obtained by other REs, expanding previous provisions that allowed for the use of information collected by agents or affiliates.
As the scope and complexity of money laundering and financial crime grow, the pressure on regulators to close gaps in compliance has increased. The latest amendments to PCMLTFA are designed to address these evolving threats and to strengthen Canada's AML/KYC framework. The goal is to close regulatory loopholes, enhance transparency, and ultimately improve the country's standing in the global fight against financial crime.
The latest amendments to Canada's KYC and AML regulations under the PCMLTFA represent a substantial step forward in addressing deficiencies in the nation's compliance framework. By focusing on enhanced due diligence, improved identity verification, and expanded oversight of financial activities, these amendments aim to mitigate the risks associated with financial crime, improve transparency, and strengthen the country's regulatory defenses. For REs operating in Canada, ensuring compliance with these new requirements will be key to staying ahead of regulatory scrutiny and maintaining trust within the marketplace.
