Fintrac releases key updates to AML obligations, including virtual currency exchange MSB registration

CFCS | Brian Monroe | Nov 22, 2019

altcoins - Fintrac releases key updates to AML obligations, including virtual currency exchange MSB registrationFintrac releases key updates to AML obligations, including virtual currency exchange MSB registration, details tactics to verify individual, corporate identities  

Canada’s Financial Transactions and Reports Analysis Centre (Fintrac), the country’s financial intelligence unit (FIU), has released a bevy of critical updates tied to anti-money laundering (AML) obligations, including opening the door for virtual currency exchanges to register as money services businesses for compliance purposes and offering more clarification on how to verify individual and corporate identities.

Fintrac, cognizant that countries, including Canada, are under more pressure to uncover and detail the beneficial owners of corporations, is bolstering a critical precursor for such initiatives: ensuring that the documentation tied to corporates, individuals and other entities is ironclad and can form the foundation of strong customer due diligence, risk assessments and be reliable in related AML investigations.

Here is a look at some of those updates:

MSBs in Canada acting as virtual currency exchanges must register and can do so now

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MSBs that deal in virtual currency can now voluntarily register with Fintrac in advance of June 1, 2020, when registration will be mandatory, according to a notice on the regulator’s site.

In short, the requirements mirror similar efforts by U.S. regulators, where a virtual currency exchange is considered an MSB and, correspondingly, MSBs are subject to a host of AML rules. Fintrac notes that crypto exchanges, and those engaged in P2P exchanges on behalf of others, are captured by the rules, even if the transactions are involving only virtual values.

AML rules, and related Fintrac and MSB registration duties, get tripped for both virtual currency exchange and virtual currency transfer services, in several scenarios, including:

1. Virtual currency exchange services include exchanging:

  • o funds for virtual currency,
  • o virtual currency for funds or,
  • o virtual currency for another virtual currency.

2. Virtual currency transfer services include:

  • o transferring virtual currency at the request of a client or,
  • o receiving a transfer of virtual currency for remittance to a beneficiary.

To read more about the upcoming virtual currency registration deadline, or to get a better sense of what Fintrac considers an MSB, click here.

Identity verification 

Methods to verify the identity of an individual and confirm the existence of a corporation or an entity other than a corporation

Fintrac also released guidance on how best to review and verify documents, details and data to properly confirm the identify of individuals and corporates to the depth required by Canada’s AML rules.

Though this may seem a rote, rudimentary task at first blush, the quality and accuracy of data is considered the lifeblood of the financial crime compliance program and customer information in particular is considered a powerful foundation for related risk assessments, which in turn, tune bank transaction monitoring systems to alert and lead to producing suspicious activity reports (SARS).

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Fintrac covers key nuances to identify verification, including using digital documentation, how and when institutions can rely on identification captured by affiliates and agents and taking a hybrid approach by combining several weaker forms of identification to reach a threshold that meets regulatory expectations while not running afoul of privacy rules.

This document answers the following questions:

  • 1. What does it mean to verify the identity of an individual or to confirm the existence of a corporation or of an entity other than a corporation?
  • 2. How do I verify the identity of an individual?
  • 3. How do I use an affiliate, agent, or mandatary?
  • 4. How do I identify a child?
  • 5. How do I confirm the existence of a corporation or of an entity other than a corporation?
  • 6. Are there restrictions on the use of personal information?

Some key snapshots include ways to verify the identity of individuals and corporations.

For individuals:

  • A government-issued photo identification document must be issued by either a federal, provincial or territorial government in order to be used to verify the identity of an individual.
  • You may accept a foreign government-issued photo identification document if it is an equivalent to a Canadian document such as those listed in this guidance.
  • Photo identification documents issued by municipal governments, Canadian or foreign, are not acceptable.

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For corporations:

  • its certificate of incorporation;
  • a certificate of active corporate status;
  • a record that has to be filed annually under provincial securities legislation; or
  • any other record that confirms the corporation’s existence, such as the corporation’s published annual report signed by an audit firm, or a letter or notice of assessment for the corporation from a municipal, provincial, territorial or federal government.

To read the full Fintrac report on identity verification, click here.

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