The Financial Transactions Reports Analysis Centre of Canada, also known as FINTRAC, was created in 2000 as Canada’s financial intelligence unit. Its mandate is to help detect, prevent, and deter money laundering and terrorist financing within the country.
Since FINTRAC was created, there have been many changes in how criminal financial activity takes place and how authorities combat it. The development of new technologies and access to reliable, independent data sources creates more impetus to leverage flexible methods for verifying identities.
In recognition of these changes, FINTRAC updated its regulations in June 2016 regarding acceptable methods to determine the identity of individual clients to ensure compliance with anti-money laundering (AML) and know your customer (KYC) regulations. These new rules are setting the trend for increased clarity on how financial services can be easily accessed by underserved and underbanked groups, such as millennials or immigrants.
What are the new regulations, and how will they impact identity verification?
New Guidelines, New Options
Among the most significant updates to the regulations is increased specificity for verifying identities in a non-face-to-face situation, i.e., when the customer is not physically present. There are now two different methods available.
The single source method relies on verifying the client’s personal information using a credit file that has existed for at least three years. Specifically, the client’s name, address, and date of birth need to be verified against the credit file.
The dual process allows for successful identity verification using information from two or more independent and reliable sources, including documents. However, document information must be an original and either presented in person or emailed - photocopies, faxes, or digitally scans are not acceptable. For a seamless and low friction non-face-to-face approach, the dual process states that two independent sources must be used, and the sources cannot be either the client or the business doing the verification. In this case, each source must match the name and either the address or date of birth of the client.
Defining a Reliable Source
According to FINTRAC, a reliable source is either an originator or issuer of information that can be trusted to verify a client’s identity. FINTRAC gives a few examples of what is considers reliable sources, including all levels of government, crown corporations, financial institutions, and utilities.
While the new guidelines provide a comprehensive list of what is considered acceptable as an independent and reliable source, they also make it very clear what is not acceptable.
For example, as briefly mentioned above FINTRAC rules out the use of online document verification.
According to the guidelines, “It is not acceptable to view photo identification online, through a video conference or through any virtual type of application. You cannot accept a copy or a digitally scanned image of the photo identification.”
In addition, social media verification is also not permitted:
“It is important to note that all documents used to ascertain client identity must be original, valid and current. Information found through social media is not acceptable.”
Online identity verification solutions that refer to data sources including Canadian credit records are considered as reliable sources under the new guidelines. As such, they can be used as powerful tools to help businesses to verify their clients in Canada, ensuring AML/KYC compliance and helping to combat fraud.
On October 3rd, Trulioo will also be presenting at the 14th instalment of Canada’s premier event in the field of money laundering compliance and control. The theme of Money Laundering in Canada 2016 is Financial Crime, Compliance, and Regulation: Keeping Pace with the Times. The event is scheduled to take place in Toronto from October 2-4, 2016. For more information, visit Money Laundering in Canada 2016.
Effective June 30, 2016, reporting entities will have a transition period to adopt new methods to ascertain the identity of clients (described in the Guideline Methods to ascertain the identity of individual clients) following the amendments made to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations. After June 17, 2017,Guideline 6 : Record Keeping and Client Identification will no longer be valid.