FINTRAC Policy Interpretations

Business Relationship

Trigger a business relationship

Question:

I had always thought that a business relationship was formed based on two transactions in the past five years, so for example, a sale and a purchase. Now it seems that the business relationship is formed "at the second time the client has conducted a purchase or sale transaction with the brokerage in the past five years", so at least 2 purchases or 2 sales. Is this interpretation correct?

Answer:

Pursuant to FINTRAC's guideline 6B, a real estate broker or sales representative enters into a business relationship when they conduct two or more transactions in which they have to:

  • ascertain the identity of the individual; or
  • confirm the existence of a corporation or other entity.

Given that a real estate broker or sales representative is required to ascertain the identity of every person who conducts a purchase OR a sale transaction, then a person who conducts a purchase AND a sale transaction has conducted two ascertaining of identification transactions and enters into a business relationship with the real estate brokerage.

The line you highlight says the same, but is meant to reflect the possibility that a person may sell a house without subsequently buying a house through the same brokerage. If the person sells their house, and doesn't buy a house, then it is only at the next purchase or sale of real estate, within 5 years, that the person would enter into a business relationship with the real estate brokerage. Two purchases or two sales also trigger a business relationship.

For example, if a client sells their house, doesn't buy a house, but comes back 2 years later to sell another house, then this too triggers a business relationship. So it has to be “at least the second time the client has conducted a purchase or sale transaction with the brokerage in the past five years.”

Date answered: 2016-03-14

PI Number: PI-6403

Activity Sector(s): Real estate

Obligation(s): Business Relationship

Guidance: 6B

Regulations: 1(2)

Business relationship

Question:

What are the business relationship obligations for financial entities subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations? Specifically, where a person holds more than one account.

Answer:

Pursuant to subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), a “business relationship” means any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,

(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to

As such, where a client holds one or more accounts at a financial entity, the business relationship is established, regardless of any subsequent requirements to ascertain, or not, the identity of the client.

Date answered: 2015-12-11

PI Number: PI-4440

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 1(2)

Act: 5

Account-based business relationships with registered products

Question:

Can FINTRAC confirm whether a securities dealer's various account types (registered, non-registered, or combined registered and non-registered) may affect its account-based business relationships?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines a business relationship as “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,
(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.”

Accordingly, subsection 62(2) of the PCMLTFR provides an exception in situations where particular types of registered products are purchased or certain types of registered accounts are opened. Specifically, paragraphs (c), (d), and (i) at subsection 62(2) of the PCMLTFR identify the following:

“(c) the purchase of an immediate or deferred annuity that is paid for entirely with funds that are directly transferred from a registered pension plan or from a pension plan that is required to be registered under the Pension Benefits Standards Act, 1985, or similar provincial legislation;
(d) the purchase of a registered annuity policy or a registered retirement income fund;
(i) the opening of a registered plan account, including a locked-in retirement plan account, a registered retirement savings plan account and a group registered retirement savings plan account;”

Therefore, a securities dealer is not required to maintain an account-based business relationship when it deals with registered products in the situations identified at subsection 62(2).

Date answered: 2015-09-02

PI Number: PI-6352

Activity Sector(s): Securities dealers

Obligation(s): Business Relationship

Guidance: 6E

Regulations: 1(2), 62(2)

Business relationships

Question:

Why isn't one transaction considered to be entering into a business relationship? Why is it two transactions?

Answer:

The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines a business relationship as “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,
(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.”

As a result, section 59.01 of the PCMLTFR states that “any money services business that is required to ascertain the identity of any person or confirm the existence of any entity in accordance with section 59 shall
(a) conduct ongoing monitoring of its business relationship with that person or entity; and
(b) keep a record of the measures taken and the information obtained under paragraph (a).”

In addition, section 59.02 of the PCMLTFR requires that “if, as a result of its ongoing monitoring of a business relationship under paragraph 59.01(a), the money service business considers that the risk of a money laundering offence or terrorist activity financing offence is high, it shall treat that person or entity as high risk for the purpose of subsection 9.6(3) of the Act and apply the prescribed special measures in accordance with section 71.1 of these Regulations.”

Therefore, it is clear that obligations exist for an MSB when a business relationship is established. The reason two transactions are required, instead of just one, is to allow the MSB to fulfil its obligations related to the business relationship, which includes conducting ongoing monitoring of its business relationship with its client. The business relationship, established with two transactions in respect of which the MSB is required to ascertain the identity of its client, allows the MSB to form the client history which becomes the foundation for the purposes of ongoing monitoring.

A client who does not conduct two transactions for which the PCMLTFA and its associated Regulations require that identity be ascertained, can still be a client. These clients are considered as clients “outside of a business relationship” because they have not met the threshold to trigger a business relationship.

Date answered: 2015-05-27

PI Number: PI-6311

Activity Sector(s): Money services businesses

Obligation(s): Business Relationship

Guidance: 6C

Regulations: 1(2), 59.01, 59.02

Purpose and intended nature of the Business Relationship

Question:

What is considered acceptable in terms of a record of the purpose and intended nature of the business relationship? More specifically, could FINTRAC confirm whether these series of approaches, taken by credit unions, are considered valid.

Answer:

Although FINTRAC is not in a position to validate particular approaches, in order to provide you with further information, it is important to consider sections 14 and 52.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). Pursuant to section 14 of the PCMLTFR, credit unions are required to have an “intended use of account” record when an account, other than a credit card account, is opened. Furthermore, section 52.1 of the PCMLTFR requires that credit unions keep a record that sets out the purpose and intended nature of the business relationship, whenever the credit union enters into a business relationship. In this respect, two records are required. The intended use of account record is specific to an account, where the record of the purposes and intended nature of the business relationship may encompass multiple accounts, products, and services. That said, where there is an account, and consequently, an intended use of account record, it is possible for this and the purpose and intended nature record to be one and the same.

The purpose and intended nature of the business relationship is a single concept that may be kept in one record. This information should reflect why and/or how an individual or entity expects to use your business' products and services, and could be inferred by the types of transactions conducted. Credit unions do not need to create a new record if this information is retrievable from existing records.

The reason for obtaining this information, and keeping a record, is to allow credit unions to anticipate the transactions and activities of clients and assist in determining if any activity, or activities, are not in line with business expectations and may, therefore, warrant being more frequently monitored or reported. That being said, if the approaches being used by credit unions allow them to do so, then they could be considered valid. Credit unions have to review this information on a periodic basis and keep it up to date. This is done to ensure that credit unions continue to understand their clients' activities over time, so any changes in behaviour may be used to assess or detect high-risk transactions and activities.

Date answered: 2014-12-22

PI Number: PI-6275

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 4, 6G

Regulations: 1(2), 14 and 52.1

Act: 6

Triggering a business relationship

Question:

What triggers a business relationship in the credit union sector?

Answer:

“Business relationship” means any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,
a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.

A non-account based business relationship is triggered when a client does not hold an account with the reporting entity, and the reporting entity is required to ascertain the identity of a person, or confirm the existence of an entity under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), for at least two transactions.

Pursuant to subsection 54(1), a credit union is required to ascertain the identity:

  • of every person who signs a signature card in respect of an account
  • of every person who does not sign a signature and has no authority on an account with the reporting entity, but who uses the RE to:
    • issue or redeem money orders, traveller's cheques or other similar negotiable instruments in an amount of $3,000 or more
    • conduct an EFT of $1,000 or more
    • conduct an FX transaction of $3, 000 or more
  • of every person who opens a credit card in their name

Pursuant to subsections 53 and 53.1, respectively, the credit union shall ascertain identity of every person for which they must keep a large cash transaction record or take reasonable measures to ascertain the identity of every person who conducts or attempts to conduct a suspicious transaction.

Scenario 1 – Client does not have an account with a credit union
In this scenario, the client enters a credit union to conduct two transactions. Should these transactions have ascertaining of identity or confirming of existence requirements attached to them, the entity would enter into a non-account-based business relationship.
These transactions include:

  • issuing or redeeming money orders, traveller's cheques or other similar negotiable instruments in an amount of $3,000 or more
  • conducting an EFT of $1,000 or more
  • conducting an FX transaction of $3, 000 or more

For these business relationships, the reporting entity is required to conduct all associated obligations, including ongoing monitoring.

If the non-account based business relationship is triggered because the client conducts two large cash transactions not included in the list above, the reporting entity is required to conduct all associated obligations, but would not have to conduct ongoing monitoring, because the identity of the person or the existence of the entity were not ascertained, or confirmed, as applicable, in accordance with section 54 or 54.1.

However, if the non-account based business relationship is considered to be high risk, either due to suspicious transactions, or other factors, then the reporting entity must implement enhanced measures to mitigate the risk, which will include ongoing monitoring for the purpose of submitting suspicious transaction reports.

Scenario 2 - Client has an account with Credit Union A and an account with Credit Union B
In this scenario, both Credit Union A and Credit Union B have an account-based business relationship with the client.
Any transaction or activity conducted at Credit Union A, relating to that account falls within the account-based business relationship with Credit Union A.
Any transaction or activity conducted at Credit Union B, relating to that account falls within the account-based business relationship with Credit Union B.

Scenario 3 – Client uses Credit Union A, with which they do not have an account, to conduct transactions at Credit Union B where the client has an account
If a client uses Credit Union A to transact on an account held at Credit Union B, then those transactions or activities would not typically trigger a business relationship with Credit Union A. Rather, the transactions or activities conducted are considered to be “related to the account” held at Credit Union B and are subject to the account-based business relationship that the client has with Credit Union B.

Credit Union A would be acting as an agent for these transactions so would likely carry out the applicable obligations on behalf of Credit Union B, but would not trigger a business relationship with the client.

That said, should Credit Union A deem the transaction or attempted transaction to be suspicious, two such transactions would trigger a non-account based business relationship with Credit Union A, with all of the associated obligations. The reporting entity cannot treat this business relationship as low risk, so if the business relationship is treated as high risk, then the reporting entity must implement enhanced measures to mitigate the risk, which will include ongoing monitoring for the purpose of submitting suspicious transaction reports.

Scenario 4 - Client has an account with Credit Union A and an account with Credit Union B but conducts transactions at Credit Union A on the account held at Credit Union B
If the client holds an account with Credit Union A, but the client uses Credit Union A to transact on an account held at Credit Union B, then those transactions or activities are not subject to the account-based business relationship the client has with Credit Union A. Rather, the transactions or activities conducted are considered to be “relating to the account” at Credit Union B and are subject to the account-based business relationship that the client has with Credit Union B.

Credit Union A would be acting as an agent for these transactions so would likely carry out the applicable obligations on behalf of Credit Union B, but would not trigger a business relationship with the client.

That said, should Credit Union A deem the transaction or attempted transaction to be suspicious, two such transactions would trigger a non-account based business relationship with Credit Union A, with all of the associated obligations. The reporting entity cannot treat this business relationship as low risk, so if the business relationship is treated as high risk, then the reporting entity must implement enhanced measures to mitigate the risk, which will include ongoing monitoring for the purpose of submitting suspicious transaction reports.

Date answered: 2014-10-01

PI Number: PI-6245

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 4, 6

Regulations: 1(2), 53, 54(1)

Act: 5

Business relationship

Question:

This firm provides traditional brokerage transactions but also provides (meaning sells) investment research but does not provide any transactional services. It also deals with suppliers that it purchases services from, for example an information technology firm.

So, the question is there a business relationship in either the sale of research or purchasing from a supplier?

Answer:

Since the firm is an entity “authorized under provincial legislation to engage in the business of dealing in securities or any other financial instruments, or to provide portfolio management or investment advising services”, as per subsection 5(g) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), they are considered a securities dealer subject to Part 1 of the PCMLTFA and its associated Regulations.

Securities dealers are subject to the PCMLTFA and as such, have obligations when they enter into business relationships, which pursuant to subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), are defined as “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,
(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.”

Normally, purchase of services from a supplier would not trigger an obligation to ascertain identity or open an account: those transactions would not create a “business relationship.”

However, in the case of the sale of “investment research”, whether a business relationship exists or not is a question of fact, and would be triggered if the entity is opening accounts for its dealings with their customer. (It should be noted that the term “account” is not defined in the PCMLTFA or its associated Regulations. While the opening of an account for the purpose of holding a client's assets is clearly understood to be an account opening, FINTRAC has taken the position that, in other cases, it is generally for a reporting entity to determine whether or not an account has been opened. To be considered an account, there does not need to be a deposit component. As indicated above, in cases other than deposit taking accounts, FINTRAC will generally respect the entity's determination of whether or not it has opened an account in any given case.) Consequently, should the firm open an account for their client so that client can purchase those services and advice, then a business relationship is created and includes “all transactions and activities relating to those accounts.”

Furthermore, a non-account-based business relationship can exist in the securities dealer sector. To trigger a non-account based relationship, a securities dealer would have to carry out 2 or more transactions for which ascertaining ID is required. In the case of securities dealers, these could be either large cash transactions or transactions, or attempted transactions, that trigger a suspicious transaction report. While the reporting entity may determine that they do not open accounts for their investment research clients, and the likelihood of certain transactions may be small, it is important for the reporting entity to be aware of the possibility.

Date answered: 2014-09-10

PI Number: PI-6231

Activity Sector(s): Securities dealers

Obligation(s): Business Relationship

Guidance: 6E

Regulations: 1(2)

Act: 5(g)

Business relationship

Question:

What is the definition of a business relationship? How is a business relationship established?

Answer:

With respect to question a:
Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines business relationship as “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,

(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.
It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.”

It is our understanding that an entity cannot be a wholly-owned subsidiary and be the same legal entity as that which owns it. Where an entity owns a subsidiary, there is still a legal separation between the two. There are two separate legal entities.That said, we are providing a response considering both possible scenarios - one legal entity and two separate legal entities.

Should the wholly-owned subsidiary and the credit union be one legal entity, then the relationship with the client would be one business relationship. The client would be considered as holding more than one account with the credit union, which would feed into the risk assessment of the single business relationship.

Should the wholly-owned subsidiary and the credit union be two separate legal entities, then each would have a separate business relationship with the client, to be assessed for risk, accordingly.

With respect to question b:
A business relationship is established with a client who holds one or more accounts, or with a client who does not hold an account, but conducts two or more transactions in which the credit union has to:

  • ascertain the identity of the individual; or
  • confirm the existence of a corporation or other entity.

A business relationship is not established on the common names of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of a corporation, or 25 per cent or more of an entity other than a corporation.

Where an individual has a retail chequing account with a financial institution, this establishes a business relationship and this business relationship consists of all accounts that the individual holds, including joint accounts and any business accounts where the individual is a sole proprietor. However, if the individual has signing authority on a business account, the business relationship is established with the account holder of that account, namely the entity. The business relationship that the financial institution has with the individual does not include the accounts where this individual is a signatory because the accounts are not held by the same client.

Date answered: 2014-07-22

PI Number: PI-6202

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 1(2)

Act: 5

Requirement for a record of the purpose and intended nature of the business relationship

Question:

Where an individual or entity holds multiple accounts, is a combination of “intended use of account” records sufficient to meet the requirement for a record of the “purpose and intended nature of the business relationship”?

Answer:

Subsection 14(c.1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “Subject to subsection 62(2), every financial entity shall keep the following records in respect of a transaction or the opening of an account other than a credit card account:

(c.1) in respect of every account that it opens, a record that sets out the intended use of the account”

Section 52.1 of the PCMLTFR states that “Every person or entity that enters into a business relationship under these Regulations shall keep a record that sets out the purpose and intended nature of the business relationship.”

Credit unions do not need to create a new record if they are able to retrieve the information from records that they already hold. As such, the “purpose and intended nature” record could be the “intended use of account” record, or another already held record, or a combination of records that demonstrate the purpose and intended nature of the business relationship.

It is important to note that the “purpose and intended nature of the business relationship” record is kept to help the credit union to anticipate the transactions and activities of clients and assist in determining if an activity, or activities, are not in line with business expectations and may, therefore, warrant being more frequently monitored or reported. Credit unions also have to review this information on a periodic basis and keep it up to date. This is done to ensure that credit unions continue to understand their clients' activities over time, so any changes in behaviour may be used to assess or detect high-risk transactions and activities.

Date answered: 2014-07-18

PI Number: PI-6193

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 14(c.1), 52.1

Exceptions of record for business relationship

Question:

  1. Is a business relationship record not deemed to be required in the following circumstances?
    a. Business relationships across separate “affiliated” reporting entities (e.g., between a credit union and its wholly-owned subsidiary, such as an insurance brokerage);
    b. Separate non-individual business relationships with common beneficial ownership;
    c. A combined business relationship for individuals that have non-connected separate business relationships with the credit union (e.g. an individual has a retail relationship and is also a signing authority for a non-related entity).

Answer:

With respect to question a:
Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines business relationship as “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,

(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.”

Where there is one legal entity, then the relationship with the client would be one business relationship. The client would be considered as holding more than one account, which would feed into the risk assessment of the single business relationship.

Where there are two separate legal entities, then each legal entity would have a separate business relationship with the client, to be assessed for risk, accordingly.

With respect to question b:
Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines business relationship as “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,

(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.”

A business relationship is established with a client who holds one or more accounts, or with a client who does not hold an account, but conducts two or more transactions in which the credit union has to:

  • ascertain the identity of the individual; or
  • confirm the existence of a corporation or other entity.

A business relationship is not established on the common names of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of a corporation, or 25 per cent or more of an entity other than a corporation.

With respect to question c:
Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines business relationship as “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,

(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.”

A business relationship is established with a client who holds one or more accounts, or with a client who does not hold an account, but conducts two or more transactions in which the credit union has to:

  • ascertain the identity of the individual; or
  • confirm the existence of a corporation or other entity.

Where an individual has a retail chequing account with a credit union, this establishes a business relationship and this business relationship consists of all accounts that the individual holds, including joint accounts and any business accounts where the individual is a sole proprietor. However, if the individual has signing authority on a business account, the business relationship is established with the account holder of that account, namely the entity. The business relationship that the credit union has with the individual does not include the accounts where this individual is a signatory because the accounts are not held by the same client.

Date answered: 2014-07-18

PI Number: PI-6192

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 1(2)

Clarification of '' Intended use of account''

Question:

“Intended use of account” is very closely connected with the “purpose and intended nature of business relationship.” Please clarify what FINTRAC sees as the difference between them and articulate the circumstances under which separate records for each of these subjects might be necessary.

Answer:

Pursuant to section 14 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), credit unions are required to have an “intended use of account” record when an account, other than a credit card account, is opened. Furthermore, section 52.1 of the PCMLTFR requires that credit unions keep a record that sets out the purpose and intended nature of the business relationship, whenever the credit union enters into a business relationship. In this respect, two records are required. The intended use of account record is specific to an account, where the record of the purpose and intended nature of the business relationship may encompass multiple accounts, products and services.

That said, where there is an account and, consequently, an “intended use of account” record, it is possible for this and the “purpose and intended nature” record to be one and the same.

The “purpose and intended nature” of the business relationship is a single concept that may be kept in one record. This information should reflect why and/or how an individual or entity expects to use your business' products and services, and could be inferred by the types of transactions conducted. Credit unions do not need to create a new record if this information is retrievable from existing records.

The reason for obtaining this information, and keeping a record, is to allow credit unions to anticipate the transactions and activities of clients and assist in determining if an activity, or activities, are not in line with business expectations and may, therefore, warrant being more frequently monitored or reported. Credit unions also have to review this information on a periodic basis and keep it up to date. This is done to ensure that credit unions continue to understand their clients' activities over time, so any changes in behaviour may be used to assess or detect high-risk transactions and activities.

Date answered: 2014-07-18

PI Number: PI-6191

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 14, 52.1

Business Relationship Records

Question:

Is there an expectation for a physical record of purpose and intended nature of the business relationship for pre-existing business relationships where a physical record doesn't currently exist? i.e., are credit unions expected to review all records and identify those accounts where there is no record of “intended use of an account” or where there is no “purpose of business relationship” recorded and create new physical records to satisfy the requirements for a business relationship record?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines business relationship as “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be, (a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts […]”

Section 52.1 of the PCMLTFR states that, “Every person or entity that enters into a business relationship under these Regulations shall keep a record that sets out the purpose and intended nature of the business relationship.”

A credit union is in a business relationship with a client that holds an account with them and enters into a business relationship when a client opens an account. As such, the credit union is expected to have a record of the purpose and intended nature of the business relationship for all business relationships, whether or not the account was opened prior to February 1, 2014, when this requirement came into force.

The credit union does not need to create a new record if they are able to retrieve the information from the records that they already hold. This does not mean that the credit union must rely on an “intended use of account record” to satisfy the requirement for a record of the purpose and intended nature of the business relationship. The credit union could rely on other information contained in other records, should it satisfy the requirements for a record of the purpose and intended nature of the business relationship.

Date answered: 2014-07-18

PI Number: PI-6190

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 1(2), 52.1

Clarification on Guidelines 4 and 6 on MSB and Business relationship

Question:

Concerning Guidelines 4 and 6, how might the requirements of these two Guidelines be different if an MSB has a client within a business relationship.

Answer:

The PCMLTFA and its associated Regulations set out when a money services business (MSB) has to ascertain the client's identity. As per subsection 59(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), MSBs have to ascertain the identity of every person who does one of the following transactions:
a) the issuance or redemption of money orders, traveller's cheques or other similar negotiable instruments in an amount of $3,000 or more;
b) the remittance or transmission of $1,000 or more by any means through any person or entity; or
c) a foreign currency exchange transaction of $3,000 or more.

In addition to the requirements of subsection 59(1), MSBs have to identify every person who conducts a large cash transaction of $10,000 or more in a single transaction. Finally, MSBs have to take reasonable measures to ascertain the identity of every person who conducts or attempts to conduct a transaction that the MSB considers to be suspicious.

That said, there are certain exceptions to ascertaining identity. That is, the MSB does not have to identify the person if:

  • the person is conducting a transaction on behalf of their employer under a service agreement;
  • you have already identified the person and you recognize the person (visually or by voice)
  • the person is involved in, or attempts, a transaction you think is suspicious if:
    • you believe that identifying the individual would inform them that you are sending a suspicious transaction report
    • you already identified them and have no doubts about that previous ID information

Date answered: 2014-07-16

PI Number: PI-6176

Activity Sector(s): Money services businesses

Obligation(s): Business Relationship

Guidance: 4, 6C

Regulations: 59(1)

Clarification of a Business relationship

Question:

If the client has been identified in the last 5 years, is there a requirement to identify him again just because he or she is conducting the purchase of a non-exempt life insurance contract? If not, then there is no business relationship because the two conditions of Guideline 6A Section 5 are not met?

Answer:

Pursuant to subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), business relationship means “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions, as the case may be,
(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.”

Securities Dealers Sector:

As per this definition, in the securities dealers sector, business relationships can be account-based or non-account based. To trigger a non-account based relationship, a securities dealer would have to carry out two or more transactions for which ascertaining ID is required. In the case of securities dealers, these could either be large cash transactions, or completed or attempted transactions, which trigger a suspicious transaction report. For securities dealers who trigger non-account based relationships, it is important to understand that these are not exempt from the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations.

As for what is considered an “account” in the securities sector, an “account” is not defined in the PCMLTFA and can potentially mean different things depending on the context. In the given situation, the securities dealer has advised that they are providing financial planning services for their clients. As such, it is possible that there is the opening of an account. While the opening of an account for the purpose of holding a client's assets is clearly understood to be an account opening, FINTRAC has taken the position that, in other cases it is generally for a reporting entity to determine when an account has been opened. Securities dealers, have their policies and procedures, and know when an “account opening” has taken place.

Life Insurance Sector:

As per the definition of business relationship, in the life insurance sector, business relationships can only be non-account based. Life insurance companies, life insurance brokers, or agents enter into a business relationship when they conduct two or more transactions in which they have to:

  • Ascertain the identity of the individual; or
  • Confirm the existence of a corporation or other entity.

In addition to ascertaining of identification for purposes of large cash and attempted or completed suspicious transactions, as outlined in subsection 56(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), subject to subsection (2), section 56.2 and subsections 62(2) and (3) and 63(1), every life insurance company or life insurance broker or agent shall ascertain, in accordance with subsection 64(1), the identity of every person who conducts, on the person's own behalf or on behalf of a third party, a transaction with that life insurance company or life insurance broker or agent for which a client information record is required to be kept under section 19.

Pursuant to subsection 19(1) of the PCMLTFR, subject to section 20.2 and subsection 62(2), every life insurance company or life insurance broker or agent shall keep a client information record for every purchase from the company, broker or agent of an immediate or deferred annuity or a life insurance policy for which the client may pay $10,000 or more over the duration of the annuity or policy, regardless of the means of payment.

In response to the question “if the client has been identified in the last 5 years, is there a requirement to identify him again just because he or she is conducting the purchase of a non-exempt life insurance contract?,” I refer you to subsection 56(1) of the PCMLTFR, which provides for the exception to identify as outlined in subsection 63(1) of the PCMLTFR, namely, where a person has ascertained the identity of another person in accordance with section 64, the person is not required to subsequently ascertain that same identity again if they recognize that other person.

However, it is important to understand that where the obligation to ascertain identify is offset by an exception, the obligation continues to exist even though the act of ascertaining identity will not be carried out. As such, should the reporting entity have been required to identify the client for a particular transaction, and subsequently, within 5 years, for another transaction, the reporting entity would have a business relationship with the client triggered by the reporting entity having conducted two or more transactions where it was required to:

  • ascertain the identity of the individual); or
  • confirm the existence of a corporation or other entity .

Date answered: 2014-06-06

PI Number: PI-6159

Activity Sector(s): Life insurance, Securities dealers

Obligation(s): Business Relationship

Guidance: 6A

Regulations: 1(2), 19(1), 56(1)

Definition of transaction and Business relationship

Question:

  1. Example: A client purchases a permanent life insurance product (universal life) whereby the client's account is debited a $10K premium per year for X years towards the purchase of this product.
    Question: Is this purchase construed as one transaction given there are multiple payments?
     
  2. Example: If the client decides to make cash payment of $10K towards the purchase of this very same product instead of a pre-authorized payment; the id is ascertained in this scenario because of the LCTR.
    Question: Is the cash payment considered a transaction? and, will this equate to a business relationship now since he is id'd for the 2nd time even though the payment is for the same product purchased a year earlier?
     
  3. Example: Now, if the client decides to makes a $10K withdrawal from this very same policy (universal life) from the investment component.
    Question: would this withdrawal be considered a transaction or not?

Answer:

A life insurance company or life insurance broker or agent, enters into a business relationship when they conduct two or more transactions in which they have to:

  • ascertain the identity of the individual; or
  • confirm the existence of a corporation or other entity.

As outlined in subsection 56(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), subject to subsection (2), section 56.2 and subsections 62(2) and (3) and 63(1), every life insurance company or life insurance broker or agent shall ascertain, in accordance with subsection 64(1), the identity of every person who conducts, on the person's own behalf or on behalf of a third party, a transaction with that life insurance company or life insurance broker or agent for which a client information record is required to be kept under section 19.

Pursuant to subsection 19(1) of the PCMLTFR, subject to section 20.2 and subsection 62(2), every life insurance company or life insurance broker or agent shall keep a client information record for every purchase from the company, broker or agent of an immediate or deferred annuity or a life insurance policy for which the client may pay $10,000 or more over the duration of the annuity or policy, regardless of the means of payment.

As such, if the permanent life insurance product constitutes an insurance product for which a client information record is required, the life insurance company or life insurance broker or agent is required to ascertain the identity of the client.

In the example you provide, a client purchases a permanent life insurance product (universal life) whereby the client's account is debited a $10K premium per year for X years towards the purchase of this product. Your question is whether or not this constitutes one purchase or many as the debits are ongoing for X years. Based on the language of subsection 19(1), it is understood that while there may be multiple payments “over the duration of the annuity or policy” this is a single purchase.

Where the client opts to make a cash payment of $10,000 or more towards the permanent life insurance product, the reporting entity, subject to section 20.2 and subsection 52(2), shall keep a large cash transaction record (s. 18 PCMLTFR), and, subject to subsection 63(1), shall ascertain, in accordance with subsection 64(1), the identity of every person with whom the person or entity conducts a transaction in respect of which that record must be kept (s. 53 PCMLTFR).

Should the reporting entity have been required to identify the client for the client information record, and subsequently, within 5 years, for a large cash transaction record, the reporting entity would have a business relationship with the client triggered by the reporting entity having conducted two or more transactions where it was required to:

  • ascertain the identity of the individual); or
  • confirm the existence of a corporation or other entity.

Finally, if the client decides to makes a $10K withdrawal from this very same policy (universal life) from the investment component, the withdrawal does not trigger any corresponding obligations, unless the reporting entity deems this to be a suspicious transaction.

Date answered: 2014-05-22

PI Number: PI-6149

Activity Sector(s): Life insurance

Obligation(s): Business Relationship

Guidance: 6A

Regulations: 18, 19(1), 56(1)

Recording of intended use for an account versus recording purpose and intended nature for a business relationship

Question:

  1. If a credit union or bank opens a credit card account, are they required to record the purpose and intended nature of the business relationship with respect to the credit card account?
  2. The requirement to collect an Intended Use for an account does NOT extend to credit cards (Section 3.3 – Records to be kept when opening an account “These records are those required when you open an account, other than a credit card account”). Since the general usage on all individual credit card accounts is similar, would it be acceptable to record a standard record of the purpose and intended nature of the business relationship for credit card accounts for individuals?

Answer:

As outlined in section 14.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), pursuant to subsection 62(2), every financial entity, shall, in respect of every credit card account that it opens, keep a credit card account record that includes a number of prescribed items, one of which is not intended use of the account.

That said, in accordance with section 52.1 of the PCMLTFR, every person or entity that enters into a business relationship under these Regulations shall keep a record that sets out the purpose and intended nature of the business relationship. Given that opening a credit card account generates an account-based business relationship, this business relationship would trigger the obligation to keep a record of the “purpose and intended nature of the business relationship.”

Sections 14.1 and 52.1 of the PCMLTFR do not contradict one another because the intended use record and the purpose and intended nature of the business relationship record are two distinct obligations. FINTRAC has clarified that reporting entities may use the information found in the intended use of the account record, in a client credit file, in a credit card account record or in an ongoing service agreement, as the purpose and intended nature of the business relationship with that client. Reporting entities do not need to create a new record if they are able to retrieve information pertaining to the purpose and intended nature of the business relationship from the records they currently hold. However, where a reporting entity is not required to collect intended use information or does not have this information in other records they hold, it is necessary to create and keep a purpose and intended nature of the business relationship record.

The record of the purpose and intended nature of the business relationship is intended to ensure that REs continue to understand their clients' activities over time so that any changes can be used to assess or detect high-risk transactions and activities. This may lead to increased monitoring (reporting entities must monitor their high-risk clients more frequently and with more scrutiny than they do their low-risk clients), updating their client identification information more frequently, and adopting any other appropriate enhanced measures.

We would encourage you to suggest that, in response to ABC suggestion that all credit cards have the same purpose and intended nature, ABC should consider “purpose and intended nature” terms they deem best reflect the business relationship with the client. That said, it is possible for an entity to have the same “purpose and intended nature” for multiple clients.

 

Date answered: 2014-05-15

PI Number: PI-6147

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 14.1, 52.1

Business relationship

Question:

I have a question regarding situations when the same person holds an account at a virtual division of a credit union and a membership at that same credit union.

This relationship differs from a business relationship held at by a member at 2 different branch locations of the same credit union.

I see these as 2 business relationships one business relationship at the credit union and a second business relationship at the virtual division - each of these business relationships may have very different purpose and intended nature of business relationship they also may have different risk ratings depending on the credit unions inherent risk assessment.

Is this correct?

Answer:

Should the virtual division and the bricks and mortar division of the Credit Union be one legal entity, then the relationship with the client would be one business relationship. The client would be considered as holding more than one account with the Credit Union, which would feed into the risk assessment of the single business relationship. For reporting purposes, as the reporting entity, the Credit Union would be required to file suspicious transactions reports where the suspicion is triggered by an activity in just one of the accounts and/or where the suspicion is triggered when transactions from both accounts are considered.

Should the virtual division and the bricks and mortar division of the Credit Union be two separate legal entities, then each would have a separate business relationship with the client, to be assessed for risk, accordingly.

For reporting purposes, where the two are separate legal entities, I refer you to FINTRAC Interpretation Notice No. 6 - Financial Transaction Reporting to FINTRAC by Reporting Entities that are Part of a Multiple-Entity Organizational Structure. The purpose of which is to clarify reporting obligations when there is more than one reporting entity in a multiple-entity organization, where multiple-entity organization means an entity with one or more subsidiaries or any organizational structure with two or more distinct legal entities. This can be a holding company or a conglomerate financial institution, as in the following examples:

  • A banking conglomerate with a retail banking subsidiary, an insurance company, a trust company, a loan company and a securities/investment firm that are each a distinct legal entity and each is a reporting entity
  • A securities firm made up of one reporting entity registered with the Investment Industry Regulatory Organization of Canada and another reporting entity registered with the Mutual Fund Dealers Association of Canada
  • A securities firm that has a subsidiary offering deposit taking, trust services or life insurance products and each is a reporting entity
  • A life insurance company that has a subsidiary that is a trust company and another subsidiary that is a securities broker and each is a reporting entity

Date answered: 2014-05-02

PI Number: PI-6145

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 2, 3

Business relationship and exception s.62(1)(a),(b) and (d).

Question:

Can you clarify for me the Amendment 1, which provides the new definition of business relationship? At the very end of the definition, there is this statement, "It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply".

  1. to clarify, does "it" means the business relationship definition?
  2. to try and decipher what the transactions or activities are that the business relationship does not apply to:

Paragraph 62(1)(a) states that "Paragraphs 54(1)(a) and (b) and 54.2(a) do not apply in respect of the opening of a business account in respect of which the financial entity has already ascertained the identity of at least three persons who are authorized to give instructions in respect of the account.

I am very confused as to how the definition of business relationship would not apply to the opening of a business account when we have already ascertained the identity of at least 3 persons.

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines business relationship as any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,

(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.

There are certain types of transactions and activities that are exempted from this broad definition of business relationship - (s. 62(1)(a), (b) and (d), and ss. 62(2) – (4)).

Paragraph 62(1)(a) applies to the opening of a business account in respect of which the RE has already ascertained the ID of three authorized signers, and not to the account as a whole. Therefore, while the activity of opening the account is exempt from the definition of business relationship, the account that is opened and the subsequent transactions and activities related to that account form part of the business relationship.

Date answered: 2014-04-14

PI Number: PI-6138

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 1(2), 62(1)(a)

Business relationships and client information

Question:

  1. How often is the information on closed accounts, considered to be low risk, have to be updated?
  2. How should beneficial ownership information be updated?

Answer:

  1. Closed business relationship on-going monitoring:

As indicated in Guideline 6G: Record Keeping and Client Identification for Financial Entities, in the case of clients who hold an account, the business relationship ceases five years after the client closes that account.

Pursuant to subsection 54.3(1) of the PCMLTFR, any financial entity that is required to ascertain the identity of any person or confirm the existence of any entity in accordance with section 54 or 54.1 shall

(a) conduct ongoing monitoring of its business relationship with that person or entity; and
(b) keep a record of the measures taken and the information obtained under paragraph (a).

As such, until the business relationship ceases 5 years after account closure the reporting entity must conduct ongoing monitoring.

It is for the reporting entity to determine, and outline in their policies and procedures, the risk level assessed for a closed account. Furthermore, the financial entity's policies and procedures should outline the periodic monitoring required for low risk business relationships. If a closed account is assessed as low risk, then it is possible for the entity to apply its low risk monitoring policies and procedures, keeping in mind that the purpose of the ongoing monitoring is to:

  • detect suspicious transactions that have to be reported;
  • keep client identification, beneficial ownership information, and the purpose and intended nature of the business relationship up to date;
  • reassess the level of risk associated with the client's transactions and activities; and
  • determine whether the transactions or activities are consistent with the information previously obtained about the client, including the risk assessment of the client.

As noted above, one purpose of ongoing monitoring is to keep client identification information and the information referred to in sections 11.1 and 52.1 up to date (subsection 1(2) of the PCMLTFR). This is required throughout the existence of the business relationship. It is for the reporting entity to determine the timeline for updating information, so long as it is commensurate with the determined risk level.

  1. Keeping beneficial ownership information up-to-date

When opening an account for an entity, a financial entity must confirming the existence of the entity in accordance with the Regulations and:

  • obtain information on beneficial ownership (subsection 11.1(1) of the PCMLTFR);
  • take reasonable measures to confirm the accuracy of the information obtained (subsection 11.1(2) of the PCMLTFR); and
  • keep a record that sets out the information obtained and the measures taken to confirm the accuracy of that information (subsection 11.1(3) of the PCMLTFR).

Furthermore, as outlined in subsection 54.3(1) of the PCMLTFR, any financial entity that is required to confirm the existence of any entity in accordance with section 54 or 54.1 shall

(a) conduct ongoing monitoring of its business relationship with that person or entity; and
(b) keep a record of the measures taken and the information obtained under paragraph (a).

As per subsection 1(2) of the PCMLTFR, “ongoing monitoring” means monitoring on a periodic basis based on the risk assessment undertaken in accordance with subsection 9.6(2) of the Act and subsection 71(1) of these Regulations, by a person or entity to which section 5 of the Act applies of their business relationship with a client for the purpose of
(a) detecting any transactions that are required to be reported in accordance with section 7 of the Act;
(b) keeping client identification information and the information referred to in sections 11.1 and 52.1 up to date;
(c) reassessing the level of risk associated with the client's transactions and activities; and
(d) determining whether transactions or activities are consistent with the information obtained about their client, including the risk assessment of the client.

As outlined above, through ongoing monitoring, the reporting entity must keep information referred to in sections 11.1 and 52.1 of the PCMLTFR up to date and must keep a record of the measures taken and the information obtained through ongoing monitoring (paragraph 54.3(1)(b) of the PCMLTFR).

FINTRAC does not specify the measures a reporting entity must take to keep beneficial ownership information up to date, but has indicated in Guideline 6G: Record Keeping and Client Identification for Financial Entities, that in the case of clients that are entities, measures to keep client identification information up to date include asking the client to provide documentation, consulting a paper or electronic record or obtaining information verbally. The reporting entity must then keep a record of how the beneficial ownership information was kept up to date.

Date answered: 2014-04-07

PI Number: PI-6132

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 1(2), 11.1, 52.1, 54.3(1), 71(1)

Business relationship - questions regarding amendments to PCMLTFR

Question:

  1. Definition of a Business Relationship – Account-Based vs. Non-Account-Based : If a reporting entity in the DPMS sector requires each of its customers to open an account before they transact, which type of business relationship should this DPMS follow? According to Guideline 4 and the PCMLTFR, it should follow the account-based business relationship; however, if going by Guideline 6I, it should follow the non-account-based business relationship.
     
  2. If a reporting entity in the DPMS sector is required by Guideline 6I to use the non-account-based business relationship, would it be a problem if they follow the definition and requirements of the account-based business relationship since their customers are all account-based?
     
  3. Definition of a Business Relationship - Multiple Accounts: What is defined as “a client holds one or more accounts”? Do the accounts have to be in the client's name only? For example, in the following scenario, I understand that John Doe holds account 1 and 2, so all transactions and activities relating to these two accounts would be included in the business relationship with John Doe; however, how should accounts 3, 4 and 5 be treated? Should account 3 be treated as a business relationship with “John Doe and Jane Doe”, a separate business relationship from that with John Doe? Should account 4 be treated as a business relationship with “Company A” and not with John Doe? Should account 5 be treated as a business relationship with “Individual B” and not with John Doe?
  • John Doe holds account 1 where he is the sole account holder;
  • John Doe holds account 2 where he is the sole account holder;
  • John Doe holds account 3 with Jane Doe together where they are both account holders;
  • Company A holds account 4 but John Doe is the operating authority on this account;
  • Individual B holds account 5 but John Doe is the operating authority on this account.
  1. Business Relationship Record - the Purpose and Intended Nature of a Business Relationship: In the second example that is given in the Guideline 6I, can “purchasing or selling precious metals” itself be used to describe the purpose and intended nature of a business relationship? In other words, is it a requirement to specify which type of precious metals (e.g. gold, silver, platinum, or palladium)?
     
  2. If a customer opens an account with us, we assume that their purpose of opening the account is to purchase from or sell to us precious metals because that is what we specialize in: purchasing and selling precious metal bullion products and also purchasing scrap metal. Does that mean we can label the purpose and intended nature of the business relationship with our customers as “purchasing or selling precious metals”? Or do our customers have to explicitly state to us that their purpose and intended nature of their business relationship with us is “purchasing or selling precious metals”?
     
  3. If a customer opens an account with us and we label the purpose and intended nature of this business relationship as “purchasing or selling precious metals,” but then the customer does not make any purchases or sales of precious metals (e.g. after the account is opened, they never conduct any transactions, or they send funds to us but do not use them), do we need to alter the purpose and intended nature of the business relationship when that happens? I would think that if they open an account but decide not to transact yet, it does not mean the purpose and intended nature of the business relationship has changed. Is my understanding correct?
     
  4. We have cooperation with certain ABC and DEF companies where customers can purchase precious metals from us and direct those metals to go to their ABC or DEF accounts, the purpose and intended nature of a business relationship with these customers would still be “purchasing or selling precious metals” because that is what is happening in these transactions. Is my understanding correct?
     
  5. Keeping Business Relationship Information Up to Date: Where it says “keep information on business relationships up to date” in Guideline 4, what does “information on business relationships” refer to? Is it client identification information, the purpose and intended nature of the business relationship and beneficial ownership?
     
  6. For DPMS, what is the requirement on “keep information on business relationship up to date”? In other words, are DPMS required to keep up to date information on all business relationships or only high risk business relationships?
     
  7. Closing an Account: If the reporting entity chooses to close the account without the customer's consent, does the business relationship also cease five years after the account is closed?
     
  8. If a business relationship is determined to be high risk (hence the account is treated as high risk), and then the reporting entity closes the account for a certain reason. Within the five years after the account is closed, the business relationship still exists. Does that mean, if the reporting entity does not lower the risk level of the business relationship, it will need to perform enhanced measures (e.g. keep client identification information up to date, perform enhanced monitoring) just like it does with other high risk business relationships even though the account is closed? With that in mind, assuming the customer only holds this one account in their business relationship with us and that account is high risk but closed, it would make more sense to lower the risk level of this closed account, because it would not make much sense to perform enhanced monitoring on a closed account where there will be no activity at all. Is my understanding correct?

Answer:

Pursuant to subsection 1(2) of the PCMLTFR, a business relationship means “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,
(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.”

Therefore, in order to trigger a non-account based business relationship, a DPMS would have to carry out 2 or more transactions for which ascertaining ID is required. In the case of a DPMS, these could be either large cash transactions or transactions, or attempted transactions, that trigger a suspicious transaction report.

According to the PCMLTFR, a DPMS has the obligation to ascertain identity in the following cases:

53. Subject to subsection 63(1), every person or entity that is required to keep and retain a large cash transaction record under these Regulations shall ascertain, in accordance with subsection 64(1), the identity of every person with whom the person or entity conducts a transaction in respect of which that record must be kept […]

53.1 (1) Except if the identity has been previously ascertained as required by these Regulations, every person or entity that is subject to these Regulations shall take reasonable measures to ascertain, in accordance with subsection 64(1), the identity of every person with whom the person or entity conducts or attempts to conduct a transaction that is required to be reported to the Centre under section 7 of the Act.

  1. As discussed above, the DPMS sector is not recognized under the PCMLTFR as having accounts and as such, it should be adhering to all non-account based obligations.
     
  2. There is nothing that prevents a DPMS from complying with the account-based regime, provided it continues to meet all non-account based obligations under the PCMLTFR.
     
  3. The DPMS sector is not recognized under the PCMLTFR as having accounts.
     
  4. Section 52.1 of the PCMLTFR states that every person or entity that enters into a business relationship shall keep a record that sets out the purpose and intended nature of the business relationship. Guideline 6I further indicates that the objective of recording the purpose and intended nature of each business relationship is to provide reporting entities with an overview of their clients' intentions and to allow them to anticipate their clients' activities and the types of transactions they will be conducting. Moreover, it enables reporting entities to identify any discrepancies or inconsistencies in the client's transaction(s) or activity, which may assist them in identifying areas that may be high risk for money laundering or terrorist financing. FINTRAC encourages reporting entities to be as specific as possible when recording the purpose and intended nature of their business relationships to ensure they have a thorough understanding of their clients' intentions and the types of transactions they will be conducting.
     
  5. Your clients are not required to explicitly state the purpose and intended nature of the business relationship; however, you must be able to concretely demonstrate the purpose and intended nature of the business relationship through your records.
     
  6. If no transactions have been conducted it does not necessarily mean the business relationship has changed. As such, it would seem logical to retain the original purpose and intended nature of the business relationship, provided you have not received information to indicate the contrary.

    I also note that section 9.6 of the PCMLTFA requires reporting entities to establish a program to assess the risk of a money laundering offence or a terrorist activity financing offence occurring. If the entity considers this risk to be high, the entity must take special and/ or enhanced measures for identifying clients, keeping records and monitoring financial transactions in respect of the activities that pose the high risk. Pursuant to section 71.1 of the PCMLTFR, enhanced measures to mitigate these risks include keeping client identification information up to date, and conducting ongoing monitoring of business relationships for the purpose of detecting transactions that are required to be reported to the Centre under section 7 of the Act. Through ongoing monitoring in high risk situations, you may obtain more up to date information regarding your client's business relationship. If this is the case, this information should be reflected in your records. You are not required to perform ongoing monitoring or keep a record of monitoring activities for business relationships that are not high-risk.
     

  7. As previously mentioned in response to question 4, we would encourage you to be as specific as possible when recording the purpose and intended nature of your clients' business relationships in order to ensure you have a thorough understanding of their intentions and the types of transactions they will be conducting. In the example you have provided, this may mean indicating that your client(s) are purchasing precious metals for the purposes of directing them to their ABC or DEF accounts.
     
  8. As discussed in the response to question 6, if you consider the risk to be high after you have conducted a risk assessment, you must take special measures for identifying clients, keeping records and monitoring financial transactions in respect of the client activities that pose the high risk. Pursuant to section 71.1 of the PCMLTFR, enhanced measures to mitigate these risks include keeping client identification information up to date, and conducting ongoing monitoring of business relationships for the purpose of detecting transactions that are required to be reported to the Centre under section 7 of the Act. According to Guideline 4, section 6.3, this means you have to develop and apply policies to keep client identification information and information on business relationships up to date. As a DPMS, you are not required to keep beneficial ownership information up to date.
     
  9. As mentioned in the responses to questions 6 and 8, as a DPMS, you only have to keep client information and information on business relationships up to date when you consider the client to be high risk.
     
  10. As the DPMS sector is not considered to have accounts, the business relationship with a client will cease if a period of five years passes from the last transaction that required you to ascertain the identity of your client (Guideline 6I, section 5).
     
  11. As the business relationship does not cease until five years has elapsed from the last transaction that required you to ascertain the identification of your client, you will have to perform ongoing monitoring of the client if you determined the risk to be high. If, while conducting ongoing monitoring during this period, you determine the risk has become low, you will no longer have an obligation to monitor the client.

Date answered: 2014-04-07

PI Number: PI-6131

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Business Relationship

Guidance: 6I

Regulations: 1(2), 52.1, 53.1(1), 63(1), 71.1

Act: 7, 9.6

Accounts within the business relationship

Question:

In a business relationship, that has 4 different accounts (say I have an account and then I have a joint account separately with each of my three girls). Let's say one of those joint accounts with my girls is high risk for whatever reason (lets say there was an STR sent for a transaction conducted by one of my daughters).

Does that make the ACCOUNT high risk ONLY ? Or does that make the business relationship as a whole high risk because one of the accounts within the business relationship is high risk ? Can you provide some guidance please?

Answer:

The Guidelines are an interpretation of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations. To this end, I have considered the questions against the Act and Regulations, but may refer to the Guidelines, where applicable.

Pursuant to subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), a business relationship “means any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,
(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply. (relation d'affaires)”

In accordance with paragraph 71(1)(c) a reporting entity must assess the level of risk of a money laundering offence or terrorist activity financing offence of its clients and business relationships. This risk assessment must take into consideration all of the elements the reporting entity has identified in its risk assessment as necessary for determining the level of risk of a client or business relationship.

The risk assessment should include an assessment of your client's products, transactions, and activities, so it will include an assessment of the type of account(s) the client has. This account assessment feeds into the overall assessment of the client or the business relationship. As such, the reporting entity will consider the “accounts with my girls” that are “high risk for whatever reason” in the risk assessment of the business relationship. If, because of the “accounts with my girls,” or any other element of the risk assessment, the business relationship with the client is determined to be high risk then it will have to be treated accordingly. Furthermore, any business relationship that is associated with the “accounts with my girls” may be impacted by the high risk assessment.

Date answered: 2014-04-04

PI Number: PI-6130

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 1(2) , 71(1)(c)

Intended Use of Account Record vs Purpose and Intended Nature Record

Question:

Am I right to understand that the purpose and intended nature of the business relationship is a single record that reflects why and/or how an individual or entity expects to use the RE's business' products and services, while the intended use of account is a single record for each account which reflects why and/or how an individual or entity expects to use that particular account?

Both need to be recorded still, correct?

Answer:

The “purpose and intended nature” can be a new record about why and/or how clients expect to use the RE's products and services, but it could also be the “intended use of account” record. We say in our guidelines that the RE does not need to create a new record if they're able to retrieve the information from the records they already hold. That record already held could be the “intended use of account” record. I didn't get that specific with this response because it was to an Money Services Businesses and Money Services Businessess are not recognized as having accounts, so would not likely have “intended use of account” records. That said, an Money Services Businesses may have the client sign a service agreement, that outlines what could be considered “the purpose and intended nature” of the business relationship.

The reason for this is to limit any possible administrative burden the requirement for a “purpose and intended nature” record might cause.

Date answered: 2014-03-03

PI Number: PI-6109

Activity Sector(s): Money services businesses

Obligation(s): Business Relationship

Guidance: 6C

Regulations: 52.1

Business Relationship clarifications for Casinos

Question:

We had a list of questions about the nature of the “business relationship” for casinos.

  1. The only ongoing business relationship that our company has with its patrons, which requires FINTRAC compliance, is gambling. We do not offer any credit, player accounts or accept wire transfers. Would it be fair to list all business relationships as “Gaming--XXXXXX”?
  2. Given our jurisdiction's lower ($1000) table limits, our player cash volumes are much lower than other jurisdictions. Is there a national benchmark/ criteria for casinos to identify a patron either “gaming, high volume” vs. “gaming, casual” ?
  3. In terms of “ongoing monitoring” is it acceptable to FINTRAC to focus on our top 100 patrons in slots / tables?
  4. Will it be a requirement of STRs, CDRs, and LCTs to include the nature of the business relationship on these reports?

Answer:

“Business relationship” means any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,

a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or

b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.

Pursuant to section 52.1 of the PCMLTFR, every person or entity that enters into a business relationship under these Regulations shall keep a record that sets out the purpose and intended nature of the business relationship.

FINTRAC has used the guidelines to help reporting entities understand these requirements. It is important for reporting entities to understand that the examples provided in the Guidelines are just examples. To this end, I would encourage you to suggest that, in response to questions 1 and 2, casinos choose “purpose and intended nature” terms they deem best reflect the business conducted and the relationship with the client. That said, it is possible for an entity to have the same “purpose and intended nature” for multiple clients.

The PCMLTFR does not allow for casinos to focus only on certain business relationships. The information on all business relationships must be reviewed on a periodic basis and kept up to date. This is done to ensure that REs continue to understand their clients' activities over time so that any changes can be used to assess or detect high-risk transactions and activities. This may lead to increased monitoring (reporting entities must monitor their high-risk clients more frequently and with more scrutiny than they do their low-risk clients), updating their client identification information more frequently, and adopting any other appropriate enhanced measures.

At this time, the purpose and intended nature information does not need to be included in the reports submitted to FINTRAC.

Date answered: 2014-03-03

PI Number: PI-6108

Activity Sector(s): Casinos

Obligation(s): Business Relationship

Guidance: 6F

Regulations: 52.1

Act: 5

Definition of Purpose of the Business relationship and Intended Nature of the Business Relationship

Question:

I would like FINTRAC to define and clarify these 2 requirements:

a) Purpose of the Business Relationship

b) Intended Nature of the Business Relationship

Answer:

Pursuant to section 52.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, every person or entity that enters into a business relationship must keep a record that sets out the purpose and intended nature of the business relationship. The “purpose and intended nature” of the business relationship is a single concept that may be kept in one record. This information should reflect why and/or how an individual or entity expects to use your business' products and services, and could be inferred by the types of transactions conducted. You do not need to create a new record if you are able to retrieve this information from the records you currently hold.

The reason for getting this information, and keeping a record of it, is to allow you to anticipate the transactions and activities of your client and to assist you in determining if an activity, or activities, are not in line with your expectations and may, therefore, warrant being more frequently monitored or reported. You also have to review this information on a periodic basis and keep it up to date. This is done to ensure that you continue to understand your client's activities over time so that any changes can be used to assess or detect high-risk transactions and activities.

The following are some examples, from the Guidelines, of the “purpose and intended nature” of business relationships that may exist in the money services business (Money Services Businesses) sector. An individual or entity may use the products or services of an Money Services Businesses to send financial support to family members in another country, whereby the purpose and intended nature of the business relationship, once established, could be “funds transfers – family support”. Alternatively, an individual may be an avid traveller regularly in need of traveller's cheques. In this case, the purpose and intended nature of the business relationship, once established, could be “buying traveller's cheques.”

Date answered: 2014-03-03

PI Number: PI-6107

Activity Sector(s): Money services businesses

Obligation(s): Business Relationship

Guidance: 6C

Regulations: 52.1

Non-account-based Business Relationship - Clarification

Question:

  1. The Guidelines have included the 75 million asset threshold, although it has been removed from legislation. Is this an error that will be corrected?
     
  2. In addition, the definition of business relationship remains very confusing. Specifically, the definition for “Non-account-based business relationship” is supposed to be defined by looking to section 4 on when you have to “confirm the existence of a corporation or other entity”. Which is a direct contradiction since that section only applies to clients who have an account with you “you have to confirm the existence of any corporation or other entity that opens an account with you”.

Answer:

  1. The public body and large corporation exceptions to ascertaining ID and record-keeping continue to exist, so the reference in the Guidelines to 75 million as per 62(2)(m) appears to be correct.
     
  2. A business relationship can be account-based or non-account based. To trigger a non-account based relationship, a securities dealer would have to carry out transactions for which ascertaining ID is required. In the case of securities dealers, this would be either a large cash transaction or a suspicious transaction. If the business practice in the SD sector does not allow for carrying out these transactions without an individual already having an account, thus creating a non-account based relationship, then it's possible for an entity to never have non-account based business relationships.

Date answered: 2014-02-13

PI Number: PI-5694

Activity Sector(s): Securities dealers

Obligation(s): Business Relationship

Guidance: 6E

Regulations: 1(2), 62(2)(m)

Business relationship vs STR requirements

Question:

The definition of “business relationship” appears to exempt from the definition clients who were exempt from customer identification. Section 53.1 now appears to obligate FRFIs to identify these clients (using reasonable measures) if they are associated with a transaction in an STR. Does the application of 53.1 effectively cancel the exemption in the def. of business relationship, since the client has now had his identity ascertained?

Answer:

Subsection 1(2) of the Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations defines business relationship as “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,

(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

It does not include any transaction or activity to which any of paragraphs 62(1)(a), (b) and (d) or any of subsections 62(2) to (4) apply.”

Subsection 53.1(1) of the Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations states that “Except if the identity has been previously ascertained as required by these Regulations, every person or entity that is subject to these Regulations shall take reasonable measures to ascertain, in accordance with subsection 64(1), the identity of every person with whom the person or entity conducts or attempts to conduct a transaction that is required to be reported to the Centre under section 7 of the Act.”

For financial institutions, these business relationships can be established within or outside of an account.

Account-based business relationship:
Financial institutions are in a business relationship with a client that holds an account with the financial institution. The financial institution enters into a business relationship when a client opens an account with the financial institution. For a new or existing client that has one or more accounts, the business relationship includes all transactions and activities relating to those accounts.

Non-account-based business relationship:
If the client does not have an account, the financial institution enters into a business relationship when the financial institution conducts two or more transactions in which they have to:

  • ascertain the identity of the individual; or
  • confirm the existence of a corporation or other entity.

In such a case, the business relationship only includes transactions and related activities for which the financial institution has to ascertain the identity of its client.

If the financial institution uses the exception to ascertaining the identity of a client where the financial institution recognizes the individual in the case of a second transaction that requires they ascertain the identity of a client (section 63 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations), they have entered into a business relationship with that client nonetheless. This is because it is the requirement to ascertain identity that triggers the business relationship.

If the financial institution has a client without an account who conducts or attempts to conduct two or more suspicious transactions, the financial institution has still entered into a business relationship with that client, even if the financial institution is unable to ascertain the identity of that client. This is because suspicious transactions require the financial institution to take reasonable measures to ascertain the identity of the client. Additionally, the financial institution must treat this business relationship as high-risk, and undertake more frequent ongoing monitoring and updating of client identification information, as well as any other appropriate enhanced measures, pursuant to section 71.1 of the Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations.

It is important to remember that all suspicious transactions and attempted transactions, including transactions that are normally exempt from client identification requirements, require the financial institution to take reasonable measures to ascertain its client's identity (except if the financial institution believes that doing so would inform the individual that the financial institution is going to submit a suspicious transaction report to FINTRAC).

Date answered: 2014-01-07

PI Number: PI-5676

Activity Sector(s): Financial entities

Obligation(s): Business Relationship

Guidance: 6G

Regulations: 1(2), 53.1(1), 63, 71.1

Date Modified: