Know-Your-Client Requirements for Securities Dealers
Securities dealers must verify the identity of persons and entities for certain activities and transactions, and carry out other customer due diligence activities, as described below:
Verification of Identity
Securities dealers are required to verify the identity of clients when opening an account or during specific transactions. This includes verifying the identity of persons or entities for certain transactions and activities. Failure to comply with these requirements can result in severe penalties.
Ongoing Monitoring
Ongoing monitoring is essential to ensure that the information collected remains accurate and up-to-date. Securities dealers must continuously monitor their clients’ transactions and activities to detect any suspicious behavior. This is crucial for maintaining compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
PEP/HIO Screening
Securities dealers must screen clients to determine if they are Politically Exposed Persons (PEPs) or Heads of International Organizations (HIOs). This involves identifying and taking reasonable measures to verify the identity of PEPs, HIOs, their family members, and close associates. Substance Law can assist in navigating these complex requirements and ensure your firm remains compliant with all regulatory obligations.
Recordkeeping Obligations
Types of Records to Maintain
Securities dealers are required to maintain a variety of records to ensure compliance with FINTRAC regulations. These include transaction records, client identification documents, and records of any suspicious activity reports filed. Proper recordkeeping is essential for demonstrating compliance and avoiding penalties.
24-Hour Rule for Reporting
Under FINTRAC guidelines, securities dealers must report certain transactions within 24 hours. This includes large cash transactions and any suspicious activities. Failure to adhere to this rule can result in severe penalties, emphasizing the importance of timely and accurate recordkeeping.
Changes in Recordkeeping Guidance
FINTRAC periodically updates its recordkeeping requirements to adapt to new risks and regulatory changes. Securities dealers must stay informed about these updates to ensure ongoing compliance. Substance Law offers comprehensive services to help you navigate these changes and maintain compliance with ease.
Compliance Program Essentials
A compliance program is a cornerstone for any securities dealer to ensure adherence to the PCMLTFA and associated Regulations. All REs must establish and implement a compliance program to meet their reporting, recordkeeping, client identification, and other know-your-client requirements. Substance Law can assist in developing a robust compliance program tailored to your needs.
Foreign Branches and Affiliates
Regulatory Requirements
Securities dealers with foreign branches, subsidiaries, or affiliates must develop comprehensive policies to meet regulatory requirements. These policies should address record-keeping, retention, and client identification. Ministerial directives also apply, requiring countermeasures for transactions involving designated foreign jurisdictions.
Reporting Obligations
Foreign branches and affiliates must adhere to stringent reporting obligations. This includes submitting electronic funds transfer reports through FINTRAC web reporting. Failure to comply can result in severe penalties.
Penalties for Non-Compliance
Non-compliance with regulatory and reporting obligations can lead to significant penalties. These may include fines and other legal actions. To mitigate these risks, it is crucial to maintain robust compliance programs.
Substance Law offers expert guidance to help you navigate these complex requirements, ensuring your foreign branches and affiliates remain compliant.
Conclusion
In conclusion, the FINTRAC requirements for securities dealers are comprehensive and multifaceted, reflecting the evolving landscape of financial regulation in Canada. From stringent Know-Your-Client (KYC) protocols to meticulous recordkeeping and compliance program mandates, securities dealers must navigate a complex array of obligations to ensure adherence to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated regulations. The recent updates and guidance issued by FINTRAC underscore the importance of vigilance and adaptability in combating financial crimes. Securities dealers must remain proactive in implementing these requirements to not only comply with legal standards but also to uphold the integrity of the financial system.
Frequently Asked Questions
What are the new Know-Your-Client requirements for securities dealers?
On March 22, 2021, FINTRAC issued new guidance on when to verify the identity of persons and entities for securities dealers to reflect the Amendments. This guidance will come into effect on June 1, 2021.
What is the 24-hour rule for reporting?
Securities dealers have 24-hour rule requirements for Large Cash Transaction Reports and Large Virtual Currency Transaction Reports. This rule was updated on October 23, 2023.
What are the recordkeeping requirements for securities dealers?
Securities dealers must keep certain records, including records related to accounts, transactions, and client identification. New recordkeeping guidance was issued on March 22, 2021, to take effect on June 1, 2021.