Anti-Money Laundering Rules Around Client ID

Know Your Client requirements under federal anti-money laundering legislation now requires an authentication software when a digital or photocopied picture ID is used as a single source to identify a client.

The updated guideline, issued November 15, 2019, reflects amendments to client identification requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) issued in July 2019. The amendments are as follows:

Using a Photo ID as a Single Source: While a reporting entity can now accept a digital or photocopied government-issued photo identification document as a means of ascertaining the identity of a client (for non-face-to-face onboarding / transactions), the reporting entity must use a software or some type of technology to authenticate the government-issued photo identification document.

In other words, you must use an authentication software to confirm the authenticity of the identification if using a digital or photocopied government-issued photo identification document as a single source of identity verification. Non-compliance will result in a penalty.

However, if using a dual-process method — a scanned government-issue photo ID, plus a downloaded bank statement, for example — is used to authenticate client identification, you don’t need to use authentication software. All other requirements remaining the same.

Note: It is not acceptable to rely on information if the account number or identifying number associated with the client profile on any of these documents is truncated or redacted.

For the Credit File Method: For a credit file to be used in ascertaining a client’s identity, the credit file must still:

• Be from a Canadian credit bureau (or an authorized credit bureau third-party vendor). Credit files from foreign credit bureaus are not acceptable;
• Have been in existence for at least three years; and
• Match the name, address and date of birth that the individual provided.

However, the recordkeeping requirements when using a credit file method have been slightly reworded. Reporting entities are now required to keep the following documentation when using the credit file method to identify a client:

• The individual's name (previously client identification information);
• The date you consulted or searched the credit file (previously date of verification);
• The name of the Canadian credit bureau or third-party vendor holding the credit file (previously source of credit file); and
• The individual's credit file number (previously reference number).

Update Your Compliance Policies and Procedures Manual

When adopting and updating your company’s compliance policies and procedures, here are the two most important things to consider:

• Your compliance program's policies and procedures must describe the processes you follow to authenticate a government-issued photo identification document, whether in person or not and how you will confirm it is valid and current.
• It must also describe the steps used to verify the name and photograph are those of the individual.

What This Means for You

The processes for a reporting entity to determine that a government-issued photo identification document is (1) authentic, valid and current and (2) the verification step (ensuring the name and picture match the name and face of the person) do not need to happen concurrently. It is up to your management / compliance team to determine how to complete these two separate steps.

Read MNP’s Canadian Anti-Money Laundering Rules Amended for more details on the updated legislation. To link to the Government of Canada source, click here.

For more information, contact Claudius Otegbade, CFE, CFCS, CFI, at 647.475.4554 or [email protected] or Mondiu Jaiyesimi, BSc., MSc., CAMS, at 647.475.4500 or [email protected]