Foreign branches, foreign subsidiaries and affiliates requirements

June 2017 

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.

June 2017

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.

Exceptions

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.

Affiliates

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.

March 2021 

Foreign branches, foreign subsidiaries and affiliates requirements

March 2021

This guidance comes into effect on June 1, 2021.

This guidance explains the foreign branches, foreign subsidiaries and affiliates requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations that apply to financial entities, life insurance companies and securities dealers.

It answers the following questions: 

  1. When do I have requirements related to foreign branches and foreign subsidiaries?
  2. What are my requirements related to foreign branches and foreign subsidiaries?
  3. What foreign branches and foreign subsidiaries records do I need to keep?
  4. Do I need to notify Canadian authorities if the laws of a foreign state do not permit or conflict with the policies developed for foreign branches and subsidiaries?
  5. Who do the requirements related to foreign branches and foreign subsidiaries not apply to?
  6. When do I have requirements for affiliates?
  7. Who do the requirements related to affiliates not apply to?
  8. When am I affiliated with another entity?
  9. What are my requirements related to affiliates?

1. When do I have requirements related to foreign branches and foreign subsidiaries?

As a financial entity, life insurance company or securities dealer you have requirements related to your foreign subsidiaries when the subsidiaries carry out activities similar to those of a financial entity, life insurance company, or securities dealer and they are wholly owned by you or they have consolidated financial statements with you, as well as for your foreign branches.Footnote 1

2. What are my requirements related to foreign branches and foreign subsidiaries?

As a financial entity, life insurance company or securities dealer, you must develop policies that establish requirements for your foreign branches and subsidiaries. These policies must be similar to your own obligations under the PCMLTFA for the following:Footnote 2

  • 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 you consider the risk to be high.

If you have a board of directors, it must approve the policies you have developed before they are applied.Footnote 3

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 foreign state where that branch or subsidiary is located.Footnote 4

3. What foreign branches and foreign subsidiaries records do I need to keep?

If a foreign branch or subsidiary cannot apply the above referenced policies you develop because they are not permitted by or they would conflict with the laws of the foreign state where the branch or subsidiary is located, you must keep a record of this fact and of the reasons why it is not permitted or would conflict.Footnote 5

Retention: You must keep foreign branch and subsidiary records for at least five years following the date they were created.Footnote 6

4. Do I need to notify Canadian authorities if the laws of a foreign state do not permit or conflict with the policies developed for foreign branches and subsidiaries?

If the laws of a foreign state do not permit or conflict with the application of a policy developed for your foreign branches or subsidiaries, then you must, within a reasonable time period, notify both FINTRAC and the principal agency or body that supervises or regulates your sector under federal or provincial law of the following:Footnote 7

  • this fact; and
  • the reasons why it is not permitted or would conflict.

5. Who do the requirements related to foreign branches and foreign subsidiaries not apply to?

The requirement to develop policies for foreign branches and foreign subsidiaries does not apply to:

  • authorized foreign banks within the meaning of Section 2 of the Bank Act;Footnote 8
  • departments or agents of the Crown that accept deposit liabilities, as they are not an entity referred to in any of paragraphs 5(a) to (g) of the PCMLTFA;
  • foreign companies within the meaning of Section 2 of the Insurance Companies Act;Footnote 9
  • life insurance brokers or agents, as they are not an entity referred to in any of paragraphs 5(a) to (g) of the PCMLTFA;
  • an RE that is a subsidiary of another RE that has the obligation to develop these policies;Footnote 10 or
  • an RE that is a subsidiary of a foreign entity, as long as the foreign entity has developed policies for its subsidiaries that establish requirements similar to the record keeping, verifying identity and compliance program requirements under the PCMLTFA; and the RE is applying those policies to the extent permitted by, and not conflicting with the laws of Canada or its provinces.Footnote 11 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 related to foreign branches and subsidiaries do not apply to the Canadian subsidiaries A and B.

6. When do I have requirements related to affiliates?

As a financial entity, life insurance company or securities dealer, you have requirements related to financial entities, life insurance companies, or securities dealers that you are affiliated with, or any foreign entities that you are affiliated with when these entities carry out activities similar to those of a financial entity, life insurance company, or securities dealer.Footnote 12

It is possible for you to be affiliated with another reporting entity that is covered under the PCMLTFA and associated Regulations.

7. Who do the requirements related to affiliates not apply to?

The requirement to develop policies for affiliates does not apply to:

  • departments or agents of the Crown that accept deposit liabilities, as they are not an entity referred to in any of paragraphs 5(a) to (g) of the PCMLTFA; or
  • life insurance brokers or agents, as they are not an entity referred to in any of paragraphs 5(a) to (g) of the PCMLTFA.

8. When am I affiliated with another entity?

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.Footnote 13

9. What are my requirements related to affiliates?

As a financial entity, life insurance company or securities dealer, 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 occurring.Footnote 14

If your affiliates cannot implement policies for the exchange of information, as a best practice, you should keep a record of the reason why these policies cannot be implemented.

You are also required, as part of your compliance program, to assess the risks resulting from the activities of your affiliates.Footnote 15 For more information about these requirements, see FINTRAC's Compliance program requirements guidance.

Date Modified: