AML Scope, Identity Verification and Business Relationships

The reporting-entity question

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) establishes obligations for reporting entities. Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada's financial intelligence unit and administers compliance with that regime. Life insurance companies, brokers and agents fall within specified requirements; apply the current sector guidance to their actual activities.

An MGA acting solely in its managing general agency capacity is not subject simply because it is an MGA. If it also acts as a life broker or agent, that separate activity can bring obligations. Likewise, an employee generally operates under the employer's obligations, but suspicious transaction reporting applies to both reporting entities and their employees under the relevant provisions.

Life insurers, brokers or agents offering certain loans or prepaid payment products to the public can have additional financial-entity obligations. Ordinary policy advances and qualifying advances secured by policy value must not be casually treated as every kind of public lending. Identify the activity and the statutory exceptions.

Distinguish triggers and exceptions

• There is no single rule requiring the same identity process for every life transaction regardless of product, amount or report type. Verification triggers include relevant large cash or virtual currency receipts, suspicious transactions and prescribed information records.

• For an information record, the life-sector guidance addresses an expectation of receiving at least $10,000 over the duration of a life policy or immediate or deferred annuity, or remitting at least $10,000 to a beneficiary over that duration. This duration-based amount differs from receiving $10,000 in cash in one transaction.

• For the relevant incoming information record, verification is generally completed within 30 days after creating the record. For a beneficiary receiving the threshold amount over the duration, verification occurs before the first remittance. Do not wait until instalments actually accumulate to the threshold when the expected total already triggers the rule.

Specified exceptions include qualifying tax-exempt policies, certain group policies without cash value or savings components and certain registered annuity or pension-transfer arrangements. These exceptions apply to defined information-record duties. They do not create a blanket exemption from suspicious transaction reporting, large cash duties or every other AML requirement.

Five prescribed identification methods

FINTRAC recognizes five methods for verifying a person's identity, subject to their conditions: government-issued photo identification, credit file, dual process, an affiliate or member, and reliance on another entity. Knowing only the first three is incomplete.

For government-issued photo identification, confirm authentic, valid and current identification issued by an appropriate federal, provincial, territorial or foreign government. Compare the name and photograph with the person. A municipal card or an expired document does not satisfy this method merely because it contains a picture.

Remote verification requires a reliable process to authenticate the document and connect it to the person. Seeing a scan on a video call alone does not establish that the document is authentic. Use procedures that meet FINTRAC's method requirements rather than inventing a mandatory proprietary technology for every agent.

Credit file and dual process

The credit-file method uses an appropriate Canadian credit file in existence for at least three years, with the required name, address and date-of-birth information. Obtain the information through the prescribed process. A client's emailed copy of a credit report is not equivalent to conducting the required verification.

The dual-process method uses information from two reliable and independent sources to confirm two prescribed categories: name and address, name and date of birth, or name and confirmation of a financial account. Two items from the same source do not satisfy the independence condition merely because they are on separate pages.

Choose categories and sources that satisfy the current guidance and record the details. Do not assume that any two pieces of identification work. Certain health cards have provincial restrictions, and a social insurance number card is not government photo identification.

Affiliate and reliance methods

The affiliate or member method and the reliance method allow use of another qualifying organization's prior verification only under specified conditions. They require proper relationships or arrangements, access to the necessary information and confidence that verification met the prescribed requirements.

An agent cannot replace those conditions with “another advisor knows the client.” An introduction, reference letter or previous policy ownership is not by itself a prescribed verification method. Maintain the documentation necessary to demonstrate why the method was available and correctly used.

Verify entities through the applicable entity methods, such as appropriate corporate or partnership records. The person giving instructions must also have the relevant authority. Incorporation proves an entity exists; it does not identify all its beneficial owners or establish the signer's authority for every transaction.

Relationships and ongoing monitoring

A life-sector business relationship generally arises when the entity is required to verify the client's identity for a second time under the applicable rules. Establish the relevant relationship information, including purpose and intended nature, and assess the risk.

Ongoing monitoring is a risk-based process. Review transactions for consistency with known activities, keep prescribed information current and apply enhanced measures to high-risk relationships. Do not assume a single identification check permanently resolves the issue.

A client who pays an ordinary premium from a long-used account presents different facts from a client suddenly paying a large amount through unrelated parties and immediately seeking surrender proceeds elsewhere. Examine the context and relevant indicators; unusual behaviour is a reason to assess, not an automatic declaration of criminal guilt.

Source checkpoint

Use FINTRAC's life-sector identity guidance and prescribed verification methods. Their triggers and exceptions must be read separately from report-specific duties.