Business relationship requirements

Business relationship requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations are applicable to reporting entities of all sectors.

June 2017

What is a business relationship?

A business relationship is a relationship established between you, as a reporting entity, and a client to conduct financial transactions or provide services related to those transactions. 

When is a business relationship established with a client?

If you are a securities dealer, casino or financial entity, business relationships are established once a client has an account with you. If they do not have an account with you, a business relationship is formed when a client has conducted two or more transactions or activities through your business, for which you are required to verify their identity.

Account-based business relationship: You are automatically in a business relationship with a client that holds an account with you.

A business relationship begins as soon as you open an account for a client. Under the business relationship you must consider all transactions and activities relating to that account, as well as any other accounts that the client might have with you.

Non-account-based-business relationship: If a person or entity does not have an account with you, a business relationship is formed once you have conducted two transactions or activities for which you have to:

In non-account-based business relationships, only transactions and activities for which you have to verify the identity of an individual or confirm the existence of an entity are part of a business relationship. For example, you may have an ongoing relationship with a person or entity because they utilize the services you offer. However, if the nature of the transaction does not require that you identify your client under the PCMLTFA, then this would not trigger any business relationship obligations. Regardless, you would still be expected to risk assess this client as part of your obligations to establish and implement a compliance program and to submit Suspicious Transaction Reports (STRs).

If you are a money services business (MSB), an accountant, a BC notary, Agent of the Crown, a real estate broker, developer or real estate sales representative, or a life insurance company, broker or agent, you enter into a business relationship once you conduct two transactions or activities for which you have to:

If you are a dealer in precious metals and stones, you are only required to identify clients for prescribed transactions and activities, and therefore you enter into a business relationship when you conduct two transactions or activities for which you have to verify the identity of the client.

What are the identification requirements that create a non-account based business relationship?

Any two transactions or activities, for which you must verify an individual’s identity or confirm the existence of an entity, will create a business relationship.

It is important to note, that even in situations where the PCMLTFA and associated regulations allow for an exception to verifying a client’s identity for the second transaction, a business relationship is still created. This is because the underlying requirement to verify a client’s identity or confirm the existence of an entity still exists for the second transaction. 

Examples of transactions or activities that can trigger a non-account based business relationship

  1. A business relationship is created when a client conducts a second large cash transaction, even if you apply the exception to not identify them a second time because you have no doubts about the information you used to identify them previously.
  2. A business relationship is created when a client has conducted two transactions that you reported to FINTRAC through Suspicious Transaction Reports (STRs). Because suspicious transactions require you to take reasonable measures to identify the client, filing two STRs about a client will create a business relationship. In this scenario a business relationship has formed even if you have applied the exception to not verify the identity of the client in order to avoid tipping them off that you are filing a report.

Do I have to do anything when a business relationship is created by two suspicious transactions?

Yes. You may decide to treat this business relationship as high-risk, and undertake enhanced ongoing monitoring of that business relationship, as well as take any other appropriate enhanced measures.

How much time do I have to determine whether a business relationship has been established?

You should determine that a business relationship has been established as soon as possible after the second transaction or activity where you had to verify the client’s identity. As a best practice, this should be done within 30 calendar days after the second transaction or activity.

What is the maximum amount of time that can pass between the two transactions or activities that create a business relationship?

A period of five years or less can pass between the transactions or activities that create a business relationship. It is transactions or activities where you are required to identify the client that need to be considered to form the business relationship.

When does the business relationship cease?

In the case of non-account-based business relationships, if a period of over five years has passed from the last transaction that required you to identify a client, the business relationship has ceased. In the case of a client who holds an account, the business relationship ceases five years after the client closes that account. This means ongoing monitoring of the business relationship must still be conducted, however it is for you to determine, in line with your policies and procedures and risk assessment, the level of risk associated with a closed account.

What are my obligations once a business relationship has been established?

Once the business relationship is established, you must:

If a business relationship has been created by two STRs you may decide to treat the business relationship as posing a high risk, and undertake more frequent ongoing monitoring, as well as take any other appropriate enhanced measures.

Dealers in precious metals and stones: You are only required to perform ongoing monitoring and keep a record of your ongoing monitoring activities for high-risk business relationships. However, regardless of a client’s risk level, you are required to keep a record of the purpose and intended nature of all your business relationships.

What is a “purpose and intended nature (PIN)” record?

It is a record that documents the purpose and intended nature of a business relationship, and includes information that would help you anticipate the types of transactions and activities your client may conduct. It should best describe your business dealings with a client.

If you already keep this information in another record, then you do not need to create a new record. For example, for clients who already hold accounts, you 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.

Do I need to review business relationship records and keep them up to date?

Yes. You have to review this information as part of your ongoing monitoring, and keep it up to date. This is done to ensure that you continue to understand your client's activities over time and so that you can compare their activities and transactions with what you would expect them to do based on the purpose and intended nature of the business relationship. In cases where the activities and transactions do not seem to make sense with what you would expect, you can use this information to assess or detect high-risk transactions and activities, which in turn will assist you in submitting STRs where needed.

Sector based examples of the purpose and intended nature of a business relationship:

Here is a short, non-exhaustive list of examples of purpose and intended nature of a business relationship in your sector:

Life insurance companies, brokers and agents:

Real estate:

Money Service businesses:

Accountants:

Securities dealers:

Retail:

Institutional/corporate:

Casinos:

Financial entities:

Personal banking:

Commercial banking:

Agents of the crown that sell or redeem money orders:

Dealers in precious metals or stones:

British Columbia notaries:

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