When to verify the identity of persons and entities—Money services businesses and foreign money services businesses

June 2017 

When to identify individuals and confirm the existence of entities – Money services businesses

June 2017

This guidance on client identification is applicable to money services businesses that are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations.

You are considered to be a money services business if you are an individual or an entity that is engaged in the business of any of the following activities:

  • foreign exchange dealing;
  • remitting or transmitting funds by any means or through any individual, entity or electronic funds transfer network; or
  • issuing or redeeming money orders, traveller's cheques or other similar negotiable instruments. This does not include redeeming cheques payable to a named individual or entity.

Money services businesses include alternative money remittance systems, such as Hawala, Hundi, Chitti, etc.

Details on how to identify individuals and confirm the existence of entities are available in FINTRAC’s guidance Methods to identify individuals and confirm the existence of entities.

Throughout this guidance, references to dollar amounts (such as $10,000) are in Canadian dollars. Furthermore, all references to cash mean money in circulation in any country (bank notes or coins) and does not include cheques, money orders or other similar negotiable instruments.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) specify when you must identify an individual or confirm the existence of an entity, and how you must do this. The point at which you identify a client will vary depending on the activity or transaction that is carried out.  Knowing your clients includes identifying them in accordance with the Regulations, but you also have further obligations in this regard, such as requirements related to the ongoing monitoring of business relationships, the determination of politically exposed persons or heads of international organizations, beneficial ownership and third party determination. Please refer to FINTRAC’s guidance on these subjects for more information.

**Note: Exceptions to your client identification requirements are listed in the last section of this guidance.

Identifying clients

As a money services business, you must identify individuals and confirm the existence of entities for certain activities and transactions, as listed below. Entities can be corporations, trusts, partnerships, funds, and unincorporated associations or organizations.

When you have to confirm the existence of an entity that is a corporation, you also have to verify its name and address, and the names of the corporation’s directors.

The formation of a business relationship and the ensuing obligations are tied to your requirement to identify clients. For non-account-based relationships, you are considered to be in a business relationship with every individual you have had to identify at least twice, and with every entity whose existence you have had to confirm at least twice. If you have not identified an individual or confirmed the existence of an entity because an exception applied, you are still considered to be in a business relationship, and must conduct ongoing monitoring and keep certain records.

You are also required to take reasonable measures to determine if a client is acting on the instruction of a third party when creating a client information record or conducting a large cash transaction. In this case, reasonable measures may include asking the individual, or relying on information you may already have about the individual. If you determine that the individual in front of you is acting on someone else's instructions, that “someone else” is the third party.

As a money services business, you are responsible for identifying clients for:

  1. Issuing or redeeming negotiable instruments of $3,000 or more
  2. Remittances or transmissions of $1,000 or more
  3. Foreign currency exchange of $3,000 or more
  4. Large cash transactions
  5. Suspicious transactions
  6. Client information records

1. Issuing or redeeming negotiable instruments of $3,000 or more

You have to identify any individual who conducts a transaction for the issuance or redemption of negotiable instruments, such as traveller’s cheques or money orders of $3,000 or more, at the time the transaction takes place.

2. Remittances or transmissions of $1,000 or more

When you remit or transmit $1,000 or more by any means, you have to identify the individual who makes the request at the time the transaction takes place.

For example, when you send $1,000 or more through an electronic funds transfer (EFT), you have to identify the individual who makes the request at the time the transaction takes place. An EFT means the transmission of instructions, through any electronic, magnetic or optical device, telephone instrument or computer, for the transfer of funds to or from Canada.

If you transmit funds as an EFT of any amount at the request of a client, including an EFT sent within Canada that is a SWIFT MT 103 message, you must include originator information.

If you receive an EFT of any amount, including an EFT sent within Canada that is a SWIFT MT 103 message, you must take reasonable measures to ensure it includes originator information. In this context, reasonable measures could include contacting the institution that sent the payment instructions.

3. Foreign currency exchange of $3,000 or more

When you exchange $3,000 or more in foreign currency, you must identify the individual conducting the transaction at the time the transaction takes place.

4. Large cash transactions

You must identify every individual who conducts a large cash transaction at the time the transaction takes place. A large cash transaction occurs when you receive $10,000 or more in cash in a single transaction. A large cash transaction also occurs when there are multiple cash transactions of less than $10,000 each that total $10,000 or more within a 24-hour period, when you know that they are conducted by, or on behalf of the same individual or entity.

5. Suspicious transactions

You must take reasonable measures to identify individuals who conduct or attempt to conduct suspicious transactions before sending a Suspicious Transaction Report. Reasonable measures in this case may include asking the individual to provide photo identification.

All suspicious transactions and attempted suspicious transactions, including transactions that are normally exempt from client identification requirements, require you to take reasonable measures to identify them.

6. Client information records

You must confirm the existence of an entity when you create a client information record for an ongoing service agreement for electronic funds transfers, funds remittance or foreign exchange services.  This includes a service agreement for the issuance or redemption of money orders, traveller’s cheques or other negotiable instruments.

You must confirm the existence of an entity within 30 days of creating a client information record.

Keeping client identification information up to date

You must update client information at a frequency that will vary based on your risk assessment. As a part of your ongoing monitoring requirements, you must keep all client identification information up to date. High-risk clients’ identification information must be updated more frequently, and you must take any other appropriate enhanced measures.

To keep client identification information up to date, you must take measures such as asking the client to provide information to confirm or update their identification information. In the case of an individual, this may include confirming or updating the information by using the options that are available to identify individuals who are not physically present.

In the case of clients that are entities, measures to keep client identification information up to date may include consulting a paper or electronic record, or obtaining information verbally.

Exceptions

You do not have to re-identify an individual or re-confirm the existence of an entity if you previously did so using the methods specified in the Regulations in place at the time and kept the associated records, so long as you have no doubts about the information used.

You do not have to verify the names of the directors when you confirm the existence of a corporation that is a securities dealer.

You do not have to identify an individual who conducts a large cash transaction if the cash is received from a financial entity or public body.

You do not have to verify the identity of an authorized employee who conducts a transaction for their employer under a service agreement.

You do not have to take reasonable measures to identify the individual who conducts or attempts to conduct a suspicious transaction only if:

  • you have already identified the individual as required and have no doubts about the identification information; or
  • you believe that identifying the individual would inform them that you are submitting a Suspicious Transaction Report.
March 2021 

When to verify the identity of persons and entities—Money services businesses and foreign money services businesses

March 2021

This guidance comes into effect on June 1, 2021.

This guidance on client identification describes when money services businesses (MSBs) and foreign money services businesses (FMSBs) must verify the identity of persons and entities as required by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations. Details on how to verify the identity of persons and entities are available in FINTRAC's Methods to verify the identity of persons and entities guidance.

This guidance answers the following questions:

  1. When do I have to verify the identity of persons and entities?
  2. What is the difference between verifying identity and keeping client identification information up to date?
  3. What are the exceptions to client identification requirements?

**Note: Throughout this guidance, references to dollar amounts (such as $10,000) are in Canadian dollars.

1. When do I have to verify the identity of persons and entities?

As an MSB or FMSB, you must verify the identity of clients for the following:

  1. Large cash transactions
  2. Large virtual currency (VC) transactions
  3. Suspicious transactions
  4. Issuing or redeeming traveller's cheques, money orders, or similar negotiable instruments of $3,000 or more
  5. Transmitting $1,000 or more in funds by means other than an electronic funds transfer (EFT)
  6. Initiating an EFT of $1,000 or more
  7. Foreign currency exchange transactions of $3,000 or more
  8. Transferring VC in an amount equivalent to $1,000 or more
  9. Exchanging VC in an amount equivalent to $1,000 or more
  10. Remitting funds in the amount of $1,000 or more to a beneficiary, by means other than an EFT
  11. Remitting funds to the beneficiary of an international EFT of $1,000 or more
  12. Remitting VC to a beneficiary in an amount equivalent to $1,000 or more
  13. Information records

a. Large cash transactions

You must verify the identity of every person or entity from which you receive $10,000 or more in cash when the transaction takes place.Footnote 1 This includes a situation where you are deemed to have received cash because you have authorized another person or entity to receive it on your behalf.Footnote 2

**Note: This obligation is subject to the 24-hour rule.Footnote 3

b. Large virtual currency (VC) transactions

You must verify the identity of every person or entity from which you receive VC in an amount equivalent to $10,000 or more when the transaction takes place.Footnote 4 This includes a situation where you are deemed to have received virtual currency because you have authorized another person or entity to receive it on your behalf.Footnote 5

**Note: This obligation is subject to the 24-hour rule.Footnote 6

c. Suspicious transactions

You must take reasonable measures to verify the identity of every person or entity that conducts or attempts to conduct a suspicious transaction, regardless of the transaction amount, and including transactions that would normally be exempt from client identification requirements, before sending a Suspicious Transaction Report (STR).Footnote 7

d. Issuing or redeeming traveller's cheques, money orders, or similar negotiable instruments of $3,000 or more

You must verify the identity of every person who requests that you issue or redeem $3,000 or more in traveller's cheques, money orders, or similar negotiable instruments when the transaction takes place.Footnote 8

e. Transmitting $1,000 or more in funds by means other than an electronic funds transfer (EFT)

You must verify the identity of every person who requests that you transmit $1,000 or more in funds by means other than an EFT (for example, by using an informal value transfer system such as Hawala remittance systems), when the transaction takes place.Footnote 9

f. Initiating an EFT of $1,000 or more

You must verify the identity of every person who requests that you initiate an EFT of $1,000 or more, when the transaction takes place.Footnote 10

g. Foreign currency exchange transactions of $3,000 or more

You must verify the identity of every person who conducts a foreign currency exchange of $3,000 or more when the transaction takes place.Footnote 11

h. Transferring VC in an amount equivalent to $1,000 or more

You must verify the identity of every person who requests that you transfer VC in an amount equivalent to $1,000 or more when the transaction takes place.Footnote 12

i. Exchange VC in an amount equivalent to $1,000 or more

You must verify the identity of every person who requests that you exchange VC for funds, funds for VC, or one VC for another, in an amount equivalent to $1,000 or more when the transaction takes place.Footnote 13

j. Remitting funds in the amount of $1,000 or more to a beneficiary by means other than an EFT

You must verify the identity of every person who is the beneficiary of a remittance received in an amount of $1,000 or more by means other than an EFT (for example, by using an informal value transfer system such as Hawala remittance systems) when the transaction takes place.Footnote 14

k. Remitting funds to the beneficiary of an international EFT of $1,000 or more

You must verify the identity of every person you remit funds to as the beneficiary of an international EFT of $1,000 or more when transaction takes place.Footnote 15

l. Remitting VC to a beneficiary in an amount equivalent to $1,000 or more

You must verify the identity of every person you remit VC to as the beneficiary of a transfer that is equivalent to $1,000 or more when the transaction takes place.Footnote 16

m. Information records

You must verify the identity of a corporation or other entity 30 days after the day on which the information record is created for:Footnote 17

  • an ongoing service agreement for international EFTs, funds remittance or foreign exchange services;
  • a service agreement for the issuance or redemption of money orders, traveller's cheques or similar negotiable instruments; or
  • a service agreement to exchange or transfer VC.

2. What is the difference between verifying identity and keeping client identification information up to date?

As part of your ongoing monitoring requirements for business relationships, you must keep client identification information up to date, at a frequency that will vary based on your risk assessment, and as outlined in your policies and procedures.Footnote 18 This does not require you to re-identify clients in accordance with the methods to verify identity. As explained in the ongoing monitoring guidance, the requirement is only for you to keep client identification information up to date. This is understood to be information that you have about your client such as their name and address. In the case of a person, this would also include, but is not limited to, the nature of their principal business or their occupation; and in the case of an entity, the nature of its principal business.

3. What are the exceptions to client identification requirements?

You do not have to re-identify a person, corporation or other entity if you previously did so using the methods specified under the Regulations in place at the time and kept the associated records, so long as you have no doubts about the information used.Footnote 19

Large cash transactions

You do not have to verify the identity of a person or entity that conducts a large cash transaction if:

  • you receive cash from a client that is a financial entity (FE) or public body, or from a person acting on behalf of a client that is an FE or public body;Footnote 20 or
  • the amount is deposited to a business account or is deposited in an automated banking machine (including a quick drop or night deposit).Footnote 21

Large VC transactions

You do not have to verify the identity of a person or entity that conducts a large VC transaction if you receive the VC from a client that is an FE or public body, or from a person acting on behalf of a client that is an FE or public body.Footnote 22

When you transfer or receive VC as compensation for the validation of a transaction that is recorded in a distributed ledger or you exchange, transfer or receive a nominal amount of VC for the sole purpose of validating another transaction or a transfer of information – you do not need to keep a large VC transaction record and do not need to verify identity.Footnote 23

Suspicious transactions

You do not have to take reasonable measures to verify the identity of the person or entity that conducts or attempts to conduct a suspicious transaction if:

  • you have already verified the identity of the person or entity as required and have no doubts about the identification information;Footnote 24 or
  • you believe that verifying the identity of the person or entity would inform them that you are submitting a Suspicious Transaction Report.Footnote 25

Service agreements

You do not have to verify the identity of an authorized employee who conducts a transaction for their employer under a service agreement.Footnote 26

Information records

You do not have to verify the identity of a corporation or other entity when you create an information record if the entity is:

  • a public body;Footnote 27
  • a corporation or trust that has minimum net assets of $75 million on its last audited balance sheet, whose shares or units are traded on a Canadian stock exchange or a stock exchange designated under subsection 262(1) of the Income Tax Act and that operates in a country that is a member of the Financial Action Task Force;Footnote 28 or
  • a subsidiary of a public body or corporation or trust, whose financial statements are consolidated with the financial statements of the public body, corporation or trust.Footnote 29
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