New anti-money laundering rules

(October 14, 2005) Canada’s proposed new anti-money laundering and anti-terrorist financing legislation would impose onerous obligations on financial advisors, Advocis says in a submission to the federal government.

Advocis commends Ottawa for attempting to put Canada in the forefront in the global fight against money laundering and terrorism. But the country’s largest advisor association maintains that the requirements will be a burden for advisors in terms of establishing identity, especially in situations where there is doubtful client information, non face-to-face situations and third party and beneficial ownership information.

“The proposal does not provide specific details regarding what measures should be taken to verify client information and how far a person must go to obtain such information,” the submission states.

“For example, if clients are not forthcoming with specific pieces of information, what obligation does the reporting entity have to further pursue the client to obtain the information? It is important to consider the ability and cost implications of smaller financial advisors of this proposed change.”

The legislation, currently in the consultation phase, will apply to advisors who operate as insurance agents and those licensed to sell securities.

Under current rules, every life insurance company or broker/agent must keep client information records for purchases of a deferred annuity or life insurance policy for which the client may pay $10,000 or more over the duration of the annuity or policy, Advocis notes.

While agents and brokers deal directly with clients and maintain client information, insurance companies approve policy applications and maintain detailed client information.

“Therefore, requiring agents to maintain the level of detailed client information in the proposals does little to enhance safeguards to the anti-money laundering tracking system.”

The legislation includes a new administrative monetary penalty regime which could also affect advisors. “In addition to criminal sanctions, advisors who fail to comply with the Proceeds of Crime and Terrorist Financing Act and the Regulations may be subject to severe, graduated administrative and monetary penalties.”

Advocis says the impact of such measures on independent financial advisors must be taken into consideration when legislation and regulations are being developed. “This is particularly important for individual advisors and small and medium-sized firms that have resource constraints and face challenges that are quite different from large companies.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com