Compliance program requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations

December 2017

Please note that FINTRAC's Guideline 4 has been replaced by “Compliance program requirements”.

This guidance on the compliance program requirements is applicable to all individuals and entities that are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations.

Compliance program requirements

Establishing and implementing a comprehensive and effective compliance program is the basis for meeting all of your reporting, record keeping, client identification and know-your-client requirements under the PCMLTFA and associated Regulations. 

There are five required elements of a compliance program. Each is considered to be a pillar of an effective anti-money laundering/anti-terrorist financing (AML/ATF) program. The five pillars are:

  1. The appointment of a person who is responsible for the implementation of the compliance program - compliance officer;

  2. The development and application of written compliance policies and procedures that are kept up-to-date, and include enhanced measures to mitigate high risks;

  3. A risk assessment of your business activities and relationships;

  4. The development and maintenance of a written ongoing compliance training program for employees, agents, and others authorized to act on your behalf; and

  5. The institution and documentation of an effectiveness review of your compliance program (policies and procedures, risk assessment and training program) every two years (minimum) for the purpose of testing its overall effectiveness.

The level of detail and sophistication of your compliance program must reflect the size, complexity, structure and risk of exposure of your business to money laundering (ML) and terrorist activity financing (TF).

During a FINTRAC examination, it is important to demonstrate that:

1. Compliance officer

Your appointed compliance officer is responsible for effectively implementing all of the elements within your compliance program: policies and procedures, ongoing training, risk assessment, and effectiveness review conducted every two years (minimum).

Appointing a designated person to be your compliance officer alone does not fulfil your compliance program requirements or the overall objectives of the PCMLTFA and associated Regulations.

In order to implement an effective AML/ATF program your compliance officer needs to:

While the compliance officer is appointed, it is the reporting entity's responsibility to meet its compliance program requirements under the PCMLTFA and associated Regulations.

Depending on the size of your business, you could be the compliance officer or it could be another individual, such as:

If you are an individual, such as in the case of a sole proprietorship, you can appoint yourself as the compliance officer, or you may choose to appoint another individual to help you implement the compliance program.

As a best practice, the appointed compliance officer of a larger business should not be directly involved in the receipt, transfer or payment of funds.

A compliance officer may choose to delegate certain duties to other employees. For example, a compliance officer may delegate responsibility to an individual in another office or branch. However, where such a delegation is made, the compliance officer remains responsible for the implementation of the compliance program.

As a best practice, the compliance officer should have the ability to report compliance related issues to, and meet with the board of directors, senior management or owner/chief operator on a regular basis.

2. Compliance policies and procedures

Written compliance policies and procedures must be developed and applied by all individuals and entities subject to the PCMLTFA and associated Regulations. This is an important component of your overall compliance program as it will guide your decisions and actions with respect to how you will comply with your legislative obligations.

Your compliance policies and procedures must be:

FINTRAC expects that your written policies and procedures outline all obligations applicable to your business under the PCMLTFA and associated Regulations and the corresponding processes and controls you have put in place, including:

Your policies and procedures, at a minimum, should cover the following requirements:

  1. Compliance program requirements covering your (a) risk assessment activities, including the risk mitigation measures you use, (b) your written ongoing compliance training program and (c) your two-year effectiveness review activities, which consist of reviewing the three cornerstones of your compliance program, namely your policies and procedures, ongoing training and risk assessment.
  2. Know your client and other requirements where applicable: verifying client identity, politically exposed persons, heads of international organizations, their family members and close associates requirements, beneficial ownership, and third party determination.
  3. Ongoing monitoring and business relationship requirements, as well as the special measures you have implemented based on your risk assessment. Your special measures instructions must address:
    • taking enhanced measures to verify the identity or confirm the existence of high risk clients;
    • taking enhanced measures to keep client information up-to-date;
    • taking enhanced measures to keep beneficial ownership information up-to-date;
    • taking enhanced measures to conduct ongoing monitoring of business relationships for the purposes of detecting transactions that are required to be reported under section 7 of the PCMLTFA (i.e., Suspicious Transaction Reports); and
    • taking any other enhanced measures to mitigate the risks identified.
  4. Record keeping requirements, including, but not limited to, retaining copies of suspicious transaction reports and casino disbursement reports and maintaining large cash transaction records.
  5. Transaction reporting requirements, including all applicable report types. These include the filing of suspicious transaction reports, terrorist property reports, large cash transactions reports, electronic fund transfer reports and casino disbursement reports.

You must also document how you will handle ministerial directives and transaction restrictions, which are targeted measures issued by the Minister of Finance to protect Canada's financial system from being used for ML/TF purposes. You are not required to have a separate and distinct policy/procedure for this type of requirement. It is acceptable to detail how you will know or become aware that one has been issued and the process of what you will do when one is issued through your regular policies and procedures. 

The level of detail in your policies and procedures depends on the size, structure and complexity of your business. It also depends on your level of exposure to ML/TF risks.

For example, the compliance policies and procedures of a small business may be less complex than those of a large business. It is important to note that, if your sector has an industry association or another governing body that has provided you with a generic set of policies and procedures, you must tailor them to your specific business and its inherent requirements (i.e. location, clientele, etc.). 

The policies and procedures you develop will play a pivotal role in your compliance program as they set out the standards that employees, agents, and others authorized to act on your behalf must meet. They should be clearly communicated, understood and followed by all those authorized to act on your behalf, including employees, agents and any others that deal with clients, transactions or other activities.

For example, relevant employees need to know how to collect the required information to identify clients, keep records and report in accordance with the PCMLTFA and associated Regulations. Furthermore, relevant employees must know how to recognize, assess, escalate and report suspicious transactions.

All your policies and procedures should be easily accessible to the appropriate audience. It is important to note that FINTRAC will not only look at your policies and procedures, but will also focus on their completeness and will expect that you can demonstrate how they are effectively implemented during an examination.

3. Risk assessment

A risk assessment is an analysis of potential risks and vulnerabilities that could expose your business to ML/TF activities. This assessment will allow you to identify your inherent risk and will assist you and those authorized to act on your behalf in developing mitigation measures to deal with these risks.  

The outcome of your risk assessment should reflect the reality of your business, be documented and as a best practice include all the elements, applicable to you, in FINTRAC's Guidance on the risk-based approach to combatting money laundering and terrorist financing. FINTRAC has also published risk-based approach workbooks that expand on the guidance to include a "how to" methodology to assist different sectors in implementing an effective risk-based approach cycle.  Workbooks have been developed for the following sectors:  accountants, British Columbia notaries, credit unions/caisses populaires, dealers in precious metals and stones, life insurance companies, brokers and agents, money services businesses, real estate, and securities dealers.

The complexity of your risk assessment will depend on the size and risk factors of your business. However you must consider the following:

How do you document the risk assessment?

How you document your risk assessment will depend on what makes sense for your business. However, FINTRAC expects that you can demonstrate that you have considered all facets of your business's exposure to ML/TF activities. To do this, you can document all the risks you have considered and the mitigation measures you have developed for those that are high risk.

You also need to be able to demonstrate to a FINTRAC compliance officer that you have reviewed and, if necessary, updated your risk assessment and mitigation measures as applicable. For example, if you offer a new product, FINTRAC expects that you have considered and documented any potential or actual ML/TF risks associated with the new product and therefore, have identified and applied measures to deal with your identified risks.

What are enhanced measures?

Enhanced measures are the development and application of written policies and procedures to mitigate high risks identified within your business and your clients.

If you identify a client as posing a high-risk, you must:

4. Ongoing compliance training program

The development, implementation and maintenance of an ongoing compliance training program is required if you have employees, agents or other individuals authorized to act on your behalf. Individuals who deal with clients and/or transactions must be trained in relation to their function/duties within your business.  

Your training program must be in writing, must be reviewed and kept up to date. If you are a sole proprietor with no employees, agents or other individuals authorized to act on your behalf, you are not required to have a training program in place for yourself. However, you must still be able to demonstrate that you have all the other required elements of a compliance program.

All those authorized to act on your behalf need to be trained in relation to their specific duties/function that they are performing, so they understand:

Who do I need to provide training to?

Your training program should be delivered and tailored to people who:

What do I need to provide training on?

At a minimum, FINTRAC expects that your training program will include:

Your training materials should include examples of how your particular type of business could be used to launder illicit funds or fund terrorist activity. This should help with the identification of suspicious transactions and may provide you some assurance that your services are not being abused for ML/TF purposes.

Does my training have to be delivered in writing?

While your training program has to be documented, the method used to deliver your training does not have to be in writing. For example, you could deliver your training program using a software, information sessions, face-to-face meetings, attending conferences, etc. However, it is a requirement that you document the following elements in writing:

During an examination, FINTRAC may review the documentation you have in relation to your training program and may conduct interviews to assess the effectiveness of your training program, i.e. your staff's understanding of your policies and procedures, their knowledge of ML/TF activities in relation to your business, etc.

What training method should I use?

The method of training you choose (such as formal, on-the-job, external, etc.) will depend on the complexity and size of your business, but it is ultimately up to you to determine the method that is most suitable. For example, a business with hundreds of branches and thousands of employees will have different training needs than a business that has one location and two employees.

5. Two-year effectiveness review

A two-year effectiveness review is an evaluation that is conducted every two years (at a minimum) to test the effectiveness of the elements of your compliance program: policies and procedures, risk assessment and ongoing training program. The review must be started no later than 24 months from the start of the previous review and completed prior to the start of the next review.

The review must be designed to allow for the identification and documentation of any gaps and weaknesses within your compliance program to ensure that your business is effectively detecting and preventing ML/TF.

The methods and scope used to test the effectiveness of your compliance program will depend on the nature, size and complexity of your business and must be documented as part of your review. The review should consider the completeness of all the components of your compliance program in addition to their effectiveness. 

The findings, frequency and timing of your review must be sufficiently documented and identify the root cause of the deficiencies identified by your review, if any. If changes are necessary and could impact your compliance policies and procedures, risk assessment or training program (such as changes to your business model or the introduction of new products or services) you should ensure that all your compliance documents are up to date before your next planned review.

If your business is regulated at the federal or provincial level, your review may be triggered by requirements determined by your regulator.

When conducting the review, you will have to determine the design and application of testing and sampling as part of your methods.

Examples of what can be included in your review:

Who should conduct the review?

The review should be done by an individual who is not directly involved in your compliance program activities, and has an adequate working knowledge of your obligations under the PCMLTFA and associated regulations. You may have an internal or an external auditor complete your review but it is not required as long as the review is completed and your documentation specifies who conducted the review.

The effectiveness review must address whether your policies and procedures, risk assessment and training program are effective, and whether your practices comply with legislative and regulatory requirements, no matter who performs it.

Reporting your review results

For entities, the following must be reported in writing to a senior officer no later than 30 days after the completion of the review:

Definitions

Administrative monetary penalties (AMPs)

Civil penalties that may be issued to reporting entities by FINTRAC for non-compliance with the PCMLTFA and related regulations. (pénalité administrative pécuniaire [PAP])

Affiliate

An entity is affiliated with another entity if one of them is wholly owned by the other, if both are wholly owned by the same entity or if their financial statements are consolidated. (entité du même groupe)

Branch

A branch is a part of your own business at a distinct location other than your main office. (succursale)

Clarification Request

A clarification request is a method used to communicate with you when we need more information about your registration form. This request is usually sent to you by email. If you do not reply to a clarification request, your registration can be denied or revoked. (demande de precisions)

Compliance officer

The individual you appoint to be responsible for the implementation of your compliance regime. Your compliance officer should have the authority and the resources necessary to discharge his or her responsibilities effectively. Depending on your type of business, your compliance officer should report, on a regular basis, to the board of directors or senior management, or to the owner or chief operator. (agent de conformité)

Credit card acquiring business

A credit card acquiring business is a financial entity that has an agreement with a merchant to provide the following services:

  • enabling a merchant to accept credit card payments by cardholders for goods and services and to receive payment for credit card purchases;
  • processing services, payment settlements and providing point-of-sale equipment (such as computer terminals); and
  • providing other ancillary services to the merchant. (entreprise d’acquisition de cartes de crédit)
Current

A document or information that is up to date (the most recent) and is not expired. (document ou renseignement à jour)

Electronic Funds Transfer (EFT)

An electronic funds transfer (money transfer) means the transmission of instructions for the money transfer of funds to or from Canada. An electronic funds transfer does not include the instructions for the money transfer of funds from one place in Canada to another in Canada. (télévirement)

Entity

Can be a corporation, trust, partnership, fund, or an unincorporated association or organization. (entité)

Financial account

Refers to deposit, credit card or other loan accounts held by a financial entity. This does not include investment accounts such as Registered Retirement Savings Plans (RRSPs). (compte financier)

Financial entity

Means a bank that is regulated by the Bank Act, an authorized foreign bank, as defined in section 2 of that Act, in respect of its business in Canada, a cooperative credit society, savings and credit union or caisse populaire that is regulated by a provincial Act, an association that is regulated by the Cooperative Credit Associations Act, a financial services cooperative, a credit union central, a company that is regulated by the Trust and Loan Companies Act and a trust company or loan company that is regulated by a provincial Act. It includes a department or an entity that is an agent or mandatary of Her Majesty in right of Canada or of a province when it is carrying out an activity referred to in section 45 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations. (entité financière)

Guarantor

A guarantor can be:

  • a medical doctor, chiropractor, or dentist;
  • a judge, a magistrate or lawyer;
  • a notary (in Quebec) or a notary public;
  • an optometrist or a pharmacist;
  • an accredited public accountant or Chartered Professional Accountant;
  • a professional engineer (P. Eng., in a province other than Quebec) or engineer (Eng. in Quebec); or,
  • a veterinarian. (répondant)
Independent

For the purposes of ascertaining client identity, the term “independent” means that the sources must be different; the information cannot be from the same issuer. (source indépendante)

Individual or person

A human being. (individu ou personne)

Institutional trust

An institutional trust is a trust that is established by a corporation, partnership or other entity for a particular business purpose and includes pension plan trusts, pension master trusts, supplemental pension plan trusts, mutual fund trusts, pooled fund trusts, registered retirement savings plan trusts, registered retirement income fund trusts, registered education savings plan trusts, group registered retirement savings plan trusts, deferred profit sharing plan trusts, employee profit sharing plan trusts, retirement compensation arrangement trusts, employee savings plan trusts, health and welfare trusts, unemployment benefit plan trusts, foreign insurance company trusts, foreign reinsurance trusts, reinsurance trusts, real estate investment trusts, environmental trusts and trusts established in respect of endowments, foundations and registered charities. (fiducie institutionnelle)

Inter vivos trust

A trust that is not created by will. This type of trust is established by a living individual for the benefit of another individual, such as a trust created by a parent for a child (also known as a living trust). Its assets can be distributed to the beneficiary during or after a settlor’s lifetime. (fiducie entre vifs)

Listed person

A listed person includes an individual, a corporation, a trust, a partnership or fund or an unincorporated association or organization that is believed to:

  • have carried out, attempted to carry out, participated in or facilitated a terrorist activity; or
  • be controlled directly or indirectly by, be acting on behalf of, at the direction of, or in association with any individual or entity conducting any of the above activities.

A listed person means anyone on a list published in the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism issued under the United Nations Act. You can consult that list of names on the Office of the Superintendent of Financial Institutions' Web site: http://www.osfi-bsif.gc.ca/Eng/fi-if/amlc-clrpc/atf-fat/Pages/default.aspx. (personne inscrite)

Money Laundering Offence

A money laundering offence involves various acts committed with the intention to hide or convert dirty money produced through criminal activity into clean money whose criminal origin is hard to trace. Criminals are always looking for ways to exchange, disguise or move money around to hide its origin. The dirty money can come from offences such as drug trafficking, bribery, fraud, forgery, murder, robbery, counterfeit money, stock manipulation, tax evasion, and copyright infringement. Dirty money can also come from illegal activities that took place outside of Canada. (infraction de recyclage des produits de la criminalité)

Money service business agent

An MSB services agent is an individual or organization authorized to act on an MSB's behalf. Do not mistake an MSB agent with a branch. If you are an MSB, an agent is a separate individual or organization that you authorize to deliver your services. If you use one or more agents to deliver your MSB services on your behalf, you need to give information about all of them in your registration form. It is your responsibility to keep your agent information up to date in your registration information. If you are an agent of an MSB, you do not have to register with us for the services you deliver for that MSB. (mandataire d’une entreprise de services monétaires)

Organization

An organization is an entity such as a corporation, a trust, a partnership, or an association. It does not include an individual. (organisation)

Original

Original refers to any paper or electronic document as it is sent from the issuer directly to the client. (version originale d’un document)

Public body
  1. any department or agent or mandatary of Her Majesty in right of Canada or of a province;
  2. an incorporated city or town, village, metropolitan authority, township, district, county, rural municipality or other incorporated municipal body in Canada or an agent or mandatary in Canada of any of them; and
  3. an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority under the Excise Tax Act, or an agent or mandatary of such an organization (organisme public).
Reliable

In reference to a source, reliable means that the source is well known, reputable, and is considered one that you trust to verify the identity of the client. (source fiable)

Senior officer

A senior officer of an organization can be:

  • a director who is also a full time employee;
  • a chief executive officer, chief operating officer, president, secretary treasurer, controller, chief financial officer, chief accountant, chief auditor or chief actuary, or any individual who performs these similar duties; or,
  • any other officer who reports directly to the board of directors, chief executive officer or chief operating officer. (cadre dirigeant)
Service agreement

A service agreement is an agreement between you and another organization for you to provide any of the following MSB services:

  • money transfers;
  • foreign currency exchange; or
  • money orders, traveller's cheques or anything similar. (accord de relation commerciale)
Settlor

A settlor is an individual or entity that creates a trust with a written trust declaration. The settlor ensures that legal responsibility for the trust is then given to a trustee and that the trustee is provided with a trust instrument document that explains how the trust is to be used for the beneficiaries. A settlor includes any individual or entity that contributes financially to that trust, either directly or indirectly. (constituent)

Source

The issuer or provider of information or documents for verifying identification. (source)

SWIFT

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) network is a global member-owned cooperative and an international provider of secure financial messaging services. (SWIFT)

Terrorist activity financing offence

A terrorist financing offence is knowingly collecting or giving property (such as money) to carry out terrorist activities. This includes the use and possession of any property to help carry out the terrorist activities. The money earned for terrorist financing can be from legal sources, such as personal donations and profits from a business or charitable organization. The money can also come from criminal sources, such as the drug trade, the smuggling of weapons and other goods, fraud, kidnapping and extortion. (infraction de financement des activités terroristes)

Trust

A right of property held by one individual or entity (a trustee) for the benefit of another individual or entity (a beneficiary). (fiducie)

Trustee

A trustee is the individual or entity authorized to hold or administer the assets of a trust in the best interests of the beneficiary. (fiduciaire)

Valid

Refers to a document or information that appears legitimate or authentic and does not appear to have been altered or had any information redacted. The information must also be valid according to the issuer, for example if a passport is invalid because of a name change, it is not valid for FINTRAC purposes. (document ou renseignement valide)

Verify client identity

To refer to certain information or documentation to identify a client and ensure that their information matches what you know about them. (vérifier l’identité d’un client)

Very Large Corporation

A large corporation is one that has minimum net assets of $75 million CAD on its last audited balance sheet. The corporation's shares have to be traded on a Canadian stock exchange or on a stock exchange outside Canada that is designated by the Minister of Finance. The corporation also has to operate in a country that is a member of the Financial Action Task Force (FATF). (personne morale dont l’actif est très important)

Working Days

A working day is a day between and including Monday to Friday. It excludes Saturday, Sunday, or a public holiday. (jour ouvrable)

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