FINTRAC Policy Interpretations

Correspondent banking

Correspondent Banking Relationship formed prior to 2007

Question:

I would like to know whether the relationship between a Canadian financial entity and a foreign financial institution constitutes a correspondent banking relationship, and if so, whether the Canadian financial entity has met the correspondent banking requirements by keeping the documents in a different language that is not English or French. If determined not to be a correspondent banking relationship, should this account be treated similarly to a money services business (MSB) account, and should the foreign financial institution register with FINTRAC as such?

Answer:

Pursuant to subsection 9.4(3) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), a correspondent banking relationship means “a relationship created by an agreement or arrangement under which an entity referred to in any of paragraphs 5(a), (b), (d), (e) and (e.1) or an entity that is referred to in section 5 and that is prescribed undertakes to provide to a prescribed foreign entity prescribed services or international electronic funds transfers, cash management or cheque clearing services.” Paragraph 16(1)(b) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) specifies that the “prescribed foreign entity” is a foreign financial institution.

Subsection 9.4(1) of the PCMLTFA requires that a financial entity take the measures referred to in the PCMLTFR before it enters into a correspondent banking relationship. However, it is important to note that the obligations for correspondent banking relationships have existed since 2007 and cannot be applied retroactively.

Therefore, it appears that the Canadian financial entity has a correspondent banking relationship with the foreign financial institution; however, because it seems this relationship was entered into before 2007, the obligations for correspondent banking relationships were not in existence at that time, and were therefore not required to be fulfilled. Despite this, the foreign financial institution is not considered to be an MSB and must not register with FINTRAC.

The PCMLTFA and its associated Regulations do not contain a provision requiring reporting entities to keep documents in French or in English for this purpose. Therefore, documents may be kept in the language of the reporting entity’s choice, but they may be asked to have them translated to allow FINTRAC compliance officers to perform their duties.

Date answered: 2017-10-12

Answer updated on: 2021-08-20

PI Number: PI-8136

Activity Sector(s): Financial entities

Obligation(s): Correspondent banking

Guidance: Correspondent banking relationship requirements

Regulations: 16(1)(b)

Act: 9.4(1), 9.4(3)

Date Modified: