Foreign branches, subsidiaries and affiliates requirements
Foreign branches, subsidiaries and affiliates requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations are applicable to reporting entities in the financial entity, life insurance and securities dealer sectors.
Foreign branches and foreign subsidiaries
Which reporting entities have obligations in relation to their foreign branches and foreign subsidiaries?
If you are a financial entity, life insurance company, or securities dealer, you have requirements related to your foreign branches and subsidiaries, if they carry out activities similar to a financial entity, life insurance company, or securities dealer, and are wholly owned by you, or have consolidated financial statements with you.
As the Canadian reporting entity, you must develop policies that establish requirements for your foreign branches and subsidiaries. These policies must be similar to your own obligations in Canada for the following:
- record keeping and retention;
- client identification; and
- the establishment and implementation of a compliance program, which includes policies and procedures to assess the risk of money laundering or terrorist activity financing offences, and risk mitigation measures when the risk is considered to be high.
If you have a board of directors, it must approve the policies before they are applied.
You must ensure that your foreign branches and subsidiaries apply the policies to the extent permitted by, and not conflicting with, the laws of the country where that branch or subsidiary is located. If a foreign branch or subsidiary cannot apply these policies because they are not permitted by or would conflict with the laws of the country where they are located, then you must keep a record of this fact and the reasons why it is not permitted or it would conflict. You must also, within a reasonable time period, notify both FINTRAC and the principal agency or body that supervises or regulates you under federal or provincial law, of that fact and those reasons.
Retention: You must keep foreign branch and subsidiary records for at least five years following the date they were created.
The requirements concerning foreign branches and subsidiaries do not apply to:
- authorized foreign banks within the meaning of Section 2 of the Bank Act;
- departments or agents of the Crown that accept deposit liabilities;
- foreign companies within the meaning of Section 2 of the Insurance Companies Act;
- life insurance brokers or agents;
- a subsidiary of a foreign subsidiary. For example, if Canadian Bank A has a foreign subsidiary - Subsidiary A - and there is a Subsidiary B of Subsidiary A, then the requirements do not apply to Subsidiary B; or
- a Canadian subsidiary of a foreign entity, as long as the foreign entity has policies for its subsidiaries that establish requirements similar to Canada’s record keeping, verifying identity and compliance program requirements under the PCMLTFA; and the Canadian subsidiary is applying those policies to the extent permitted by, and not conflicting with the laws of Canada or its provinces. For example, when Foreign Bank A (with subsidiaries A and B in Canada) already has policies regarding client identification, record keeping and the establishment of a compliance program, then these requirements do not apply to the Canadian subsidiaries A and B.
Which reporting entities have requirements in relation to their affiliates?
If you are a financial entity, life insurance company, or securities dealer, you have requirements related to any other financial entity, life insurance company, or securities dealer that you are affiliated with, or any foreign entity that you are affiliated with, which carries out activities similar to a financial entity, life insurance company, or securities dealer.
You are affiliated with another entity when one of you is wholly owned by the other, if both of you are wholly owned by the same entity, or if your financial statements are consolidated.
It is possible for you to be affiliated with another reporting entity that is covered under the PCMLTFA and associated Regulations.
What are the requirements?
You must develop and apply policies and procedures related to the exchange of information between yourself and your affiliates. The purpose of this exchange of information is to help you detect and deter money laundering and terrorist activity financing offences, and to help you assess the risk of any such offence.
If your affiliates cannot implement policies for the exchange of information, you may want to keep a record which would include the rationale as to why these policies cannot be implemented.
Risk-based assessments relating to your affiliates
As part of the compliance program, financial entities, life insurance companies and securities dealers must consider any risk resulting from the activities of:
- an entity that is affiliated with them and that is a financial entity, life insurance company, or securities dealer; and
- a foreign entity that is affiliated with them and that carries out activities similar to financial entities, life insurance companies, or securities dealers.
The activities of affiliates should be included as part of the overall risk-based approach.
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