KYC Requirements in Canada: A Guide to Stay Compliant in 2024

Venturing into 2024 indicates new opportunities and processes. Staying compliant in this dynamic environment is vital. Navigating the intricate landscape of Know Your Customer (KYC) requirements in Canada can be daunting for businesses, particularly as regulations evolve.

As the country strengthens its efforts to combat financial crimes, companies must stay abreast of changes to remain compliant. This guide will provide an in-depth look at the current KYC requirements in Canada and how they are likely to transform in the coming years.

KYC Requirements in Canada

Canada’s commitment to combating money laundering and other financial crimes is evident in its robust regulatory framework. The country was among the early adopters of KYC and Anti-Money Laundering (AML) measures and continues to play a leading role in shaping global standards. However, staying compliant with KYC requirements in Canada calls for a thorough understanding of the country’s regulatory landscape.

1: Canada’s Role in Global AML Regulations

Canada’s significant role in global AML regulations dates back to 1990 when it became a founding member of the Financial Action Task Force (FATF). The FATF is responsible for setting standards for global AML regulations and gauging the effectiveness of a country’s efforts in this regard.

In 2016, Canada fell short of FATF’s expectations, prompting the country to bolster its technical compliance over the following five years. Today, Canada continues to amend its efforts to align with global AML standards.

2: The Cooperative Approach

The Canadian government adopts a cooperative approach in its fight against money laundering and terrorist financing. This strategy involves collaboration among various federal agencies, international partners, and regulated entities.

The government views the fight against these financial crimes as a team effort that demands the active involvement of all stakeholders. This necessitates the Canada KYC requirements for all people living here or wanting to start a business venture.

KYC Hub's Global KYC Solution

A Closer Look at KYC Regulations in Canada

One of the cornerstones of AML efforts in Canada is the KYC regulations. These Canada KYC requirements help financial institutions gain a better understanding of their customers, thereby preventing the integration of illicit funds into the financial system.

KYC requirements in Canada are based on these regulatory and compliance guidelines.

The Genesis of KYC Laws in Canada

KYC requirements in Canada became law in 1991 with the passage of the Proceeds of Crime (Money Laundering) Act. This act was significantly enhanced in December 2001 in response to the September 11 terrorist attacks, and it was subsequently renamed the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

The PCMLTFA aims to standardize protective measures across an estimated 24,000 businesses in Canada. These protective measures include:

Entities Required to follow KYC Canada Requirements

The entities that must comply with Canada’s KYC requirements span a wide range of industries. These include-

  • Money services businesses
  • Real estate brokers and developers
  • Insurance companies
  • Professional services such as law firms and accounting firms
  • Casinos and gaming establishments.

Additionally, banks and other financial institutions engaged in certain activities must adhere to these laws.

In recent years, the list of entities required to follow the Canada KYC requirements law has expanded to include fintech companies and e-commerce businesses involved in age-regulated sales. Cryptocurrency transactions are also now permissible for certain eligible businesses, provided they receive more than C$10,000 (USD$7,300) in crypto funds.

Global KYC Regulations and Compliance

Regulatory Bodies Overseeing KYC Compliance in Canada

In Canada, the AML process is overseen by 13 federal departments and agencies, coordinated by the Department of Finance Canada. Some of the key agencies verifying the KYC requirements in Canada include:

1: FINTRAC

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) oversees the PCMLTFA and investigates suspicious transaction reports filed with law enforcement and government agencies. It also prosecutes parties involved in confirmed cases of money laundering and terrorist financing.

2: OSFI

The Canadian government’s autonomous Office of the Superintendent of Financial Institutions (OSFI) oversees and controls private pension schemes and financial institutions.

3: CSA

The Canadian Securities Administrators (CSA) mandate KYC obligations for investment advisors as part of the New Account Application Form. Advisors must understand their clients’ risk tolerance, investment objectives, and horizons and ascertain the client’s level of investment knowledge.

The KYC Onboarding Process in Canada

The KYC process in Canada revolves around identifying the customer, verifying their true identity, understanding their activities and source of funding, and monitoring the customer’s activities.

The KYC process in Canada primarily involves identifying individuals opening accounts and those responsible for corporate clients’ business decisions. Financial institutions and banks are responsible for this process.

Canada has three approved methods for identity verification:

  1. Government-issued photo identification
  2. Credit file
  3. Dual-process

1: Government-Issued Photo Identification Method

Under this method, a government-issued photo identification document must be issued by a federal, provincial, or territorial government to qualify for identity verification. Foreign government-issued photo identification documents can be accepted for verification if they are equivalent to a Canadian document.

KYC Hub Identity Verification Solution

2: Credit File Method

A credit file document represents an independent rating of an individual’s ability to repay loans. Companies can request a credit file that does not include a credit assessment to verify a person’s information. This will help the government authorities identify and improve the KYC requirements in Canada.

3: Dual-Process Method

The dual-process method requires two separate and “reliable” sources that have originated or issued the information for verifying a person’s identity. One of the sources can be a photocopy of a government-issued ID.

Staying Compliant with Canadian Laws and Regulations

Compliance with KYC requirements in Canada is a continual process that doesn’t end after the initial identification measures. Financial institutions and banks need to proactively protect against new threats and changing regulations. They also need to ensure that existing clients continue to be monitored and understood. Below are some tips for staying compliant:

1: Develop a Compliance Policy and Procedures

A written set of guidelines outlining the full scope of KYC and related measures, including employee training, should be created and updated regularly.

2: Appoint a Compliance Officer

FINTRAC suggests appointing a chief compliance officer to fully address all regulations.

3: Perform Customer Due Diligence

This involves verifying client identification and the individuals responsible for managing corporate clients as part of customer due diligence procedures.

Beneficial ownership, third parties, anticipated transaction amount and breadth, justification for account use, and any connection with high-risk activities are all pieces of information that must be collected.

Customer Due Diligence follows a list of key details, including the individual’s KYC requirements in Canada.

4: Apply Enhanced Measures as needed

Enhanced measures might include obtaining additional information from the client or about the client based on public records research.

5: Conduct Screening

Transaction screening is a requirement for banking institutions, such as banks, to identify and prevent unusual activity. They should also regularly screen individuals’ names for their presence on sanctions lists, watch lists, and negative news.

KYC Compliance in Canada with the KYC Hub

Whether your organization is entering or expanding within Canada, it’s crucial to understand which KYC obligations apply to your industry. KYC Hub offers the Best KYC Solutions that are flexible enough to adapt to these varied requirements.

KYC Hub’s solutions can quickly and easily collect and analyze government IDs, other identifying documents, and selfies from your clients for initial verification or periodic re-verification. Our suite of reports allows you to build out a fuller picture of your users via watch list checks, sanctions checks, and other database queries.

By automating the cross-checking of ID information with existing information on file, KYC Hub enables companies to ensure their customers are legitimate. Our solutions help standardize processes, save time, and reduce the frequency of identification requests from users.

Conclusion

As the regulatory environment in Canada continues to evolve, entities working in this jurisdiction need to keep up. Infractions of Canadian regulations are punishable by fines. In recent times, Wealth One Bank of Canada has incurred a C$650,000 ($480,000) fine in relation to compliance.

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