When to identify individuals and confirm the existence of entities – Financial entities

June 2017

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

Details on how to identify individuals and confirm the existence of entities is 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 client 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.

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

Identifying clients

As a financial entity, 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 requirements to identify clients. You are in a business relationship with every individual or entity that holds an account with you. 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 an account operating agreement, a signature card 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 financial entity you are responsible for identifying clients for:

  1. Account openings and signature card creation

  2. Credit card account opening

  3. Settlors or co-trustees of a trust

  4. Large cash transactions

  5. Suspicious transactions

  6. Electronic funds transfers of $1,000 or more

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

  8. Issuing or redeeming $3,000 or more in money orders, traveller’s cheques or other similar negotiable instruments

1. Account openings and signature card creation

You must identify all individuals that you create a signature card for in relation to an account that you open. A signature card is a document signed by an individual authorized to give instructions on an account, or electronic data that constitutes a signature. It can include the hand written signature of an individual or an electronic signature that is created or adopted by an individual. The electronic signature can be numeric, character-based, or biometric as long as it is unique to the individual and a record can be kept. This must be done before any transaction is carried out on the account other than an initial deposit.

When you open an account for an entity, you must:

All of this must be done before the first transaction occurs on the account, other than the initial deposit.

When you open a business account, you do not have to identify every individual for whom you create a signature card if you have created a signature card for more than three individuals and have identified at least three of these individuals. These individuals must be identified before the first transaction occurs on the account, other than the initial deposit.

If you cannot identify an individual or confirm the existence of an entity in connection with the opening of a new account, you cannot open the account.

You also must identify individual members of a group plan account for whom you have to keep a signature card. The signature card is required for individual members when the member’s contributions are not made by payroll deduction or by the plan sponsor, or when the existence of the plan sponsor is not confirmed. This verification has to take place at the time of the contribution.

2. Credit card account opening

You must identify individuals who open credit card accounts before the credit cards can be activated. If credit cards are issued for individuals other than the account-holder, you must record their information but you do not have to identify them. For example, a mother applying for a credit card account requests that a credit card be issued on that account for her son and daughter. In this example, the mother has to be identified as she is the account-holder, but her son and daughter do not.

If there are two or more co-applicants for a credit card account (in other words, if a credit card account is opened in the name of more than one individual), the identification requirement applies to all co-applicants.

When you open a credit card account for an entity, you must confirm its existence and obtain the beneficial ownership information before the credit card can be issued. If that entity is a corporation, you must also verify its name and address as well as its directors’ names.

3. Settlors or co-trustees of a trust

If you are a trust company, in addition to your requirement to identify clients at account opening, you must also identify every individual who is the settlor of an inter vivos trust for which you are a trustee.

If an entity is the settlor of an institutional trust for which you are a trustee, you must confirm its existence. If the entity is a corporation, you must also verify its name and address and obtain the names of its directors.

You must identify any individual that is authorized to act as a co-trustee of a trust.

If an entity is authorized to act as the co-trustee of a trust, you must confirm its existence and identify at least three individuals authorized to give instructions on its behalf. If the entity is a corporation, you must also verify its name and address, and the names of its directors.

Identifying an individual or confirming the existence of an entity all have to be done within 15 days of a trust company becoming trustee.

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 your clients.

6. Electronic funds transfers of $1,000 or more

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. In the case of messages sent through the SWIFT network, only SWIFT MT 103 messages are included. An EFT includes any transmission of instructions for the transfer of funds within Canada that is a SWIFT MT 103 message.

If you transmit 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 the 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 the originator information. In this context, reasonable measures may include contacting the institution that sent the payment instructions.

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

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

8. Issuing or redeeming $3,000 or more in money orders, traveller’s cheques or other similar negotiable instruments

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.

Keeping client identification information up to date

You must update client information at a frequency that will vary based on your risk assessment. As 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

General exception

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.

If you are carrying on activities as a credit card acquiring business, client identification requirements do not apply.

When creating a signature card for an account or opening a credit card or trust account, you can apply an exception to identifying an individual or confirming the existence of an entity if the account is for a public body or a very large corporation. The same is true regarding a subsidiary of either of those types of entities, if the financial statements of the subsidiary are consolidated with those of the public body or a very large corporation.

You do not have to identify an individual who is authorized on a business account, so long as you have identified at least three individuals authorized to give instructions on the account. If one of the three identified individuals leaves the business, you must identify another individual authorized on the account.

You do not have to identify an individual or confirm the existence of an entity if the account is opened in the name of an affiliate of a financial entity, if that affiliate carries out activities that are similar to those of financial entities, life insurance companies, agents or brokers, or securities dealers.

You do not have to identify an individual who already holds an account with you, or who is authorized to give instructions on an account held with you, when that individual:

You do not have to identify an individual who conducts a large cash transaction, if the cash is:

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

Account openings including credit cards and trust accounts

There are specific exceptions that apply to your requirements to identify clients. You do not have to identify an individual or confirm the existence of an entity that opens an account, in respect of the following:

If you open a group plan account, other than those identified above, you do not have to identify, or keep a signature card for individual members of the plan if:

Date Modified: