New screening and monitoring requirements for Politically Exposed Persons (PEPs) in Canada have recently been implemented. To remain compliant banks and payment processors will have to implement a much more wide-reaching AML regime than ever before. Financial institutions will have to apply these to all new customers and will have to review their entire pre-existing customer base over time. With all these new requirements, companies should be asking themselves: Is their current PEP screening and monitoring solution up to scratch?
What is the PCMLTFA?
The Proceed of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) was first created in 2001. It seeks to detect and deter money laundering and terrorist financing, respond to the threat posed by serious and organized crime and to fulfil Canada’s obligations to tackle multinational crime. Like many similar pieces of legislation around the world it’s going through a period of evolution to make it suitable for countering new and emerging threats. In 2014 a series of amendments to the PCMLTFA were announced. The first round of amendments concerning parts of Identification & Verification (ID&V) and general regulations were implemented in June 2016. The second wave of amendments concerning Politically Exposed Person (PEPs) and risk assessments were implemented 17th June 2017 with the final round concerning the full ID&V requirements coming into force on the extended deadline of the 23rd January 2018.
What does PCMLTFA mean for PEPs screening?
Crucially, financial institutions will now have to screen not just foreign PEPs but also domestic PEPs and Heads of International Organisations (HIOs). All must be screened at onboarding, periodically throughout the client relationship and when facilitating transactions at or over $100,000. The relatives and close associates of foreign PEPs and high risk domestic PEPs and high risk HIOs must also have the above measures automatically applied to them.
All foreign PEPs must be considered high risk but domestic PEPs are not automatically classed as high risk – a Money Laundering/Terrorist Financing risk assessment must be carried out at onboarding to determine their level of risk, the appropriate measures should then be applied depending on their perceived level of risk. It is worth noting that all high risk PEPs and HIOs should be subject to “enhanced ongoing monitoring” which is more frequent and covers a wider range of activities.
PCMLTFA at a glance (Click to enlarge)
What’s interesting about the PCMLTFA amendments?
These new PEP requirements fit with the wider global regulatory trend of of addressing the ease at which PEPs could abuse their positions, which has grown momentum since the revelations made in the Panama Papers. New requirements to extend the practises usually afforded only to foreign PEPs to their domestic counterparts have been brought into force across Europe with the introduction in June of the 4th Money Laundering Directive (4MLD) and have been in force in Australia since 2015.
What is interesting about Canada’s approach to PEP regulation is the duration of time that has been stipulated that PEPs remain classed as PEPs. Domestic PEPs are classified as PEPs for five years after they leave office even if they are considered low risk. This could be seen as a little heavy handed, especially as the UK’s FCA stipulated in their recent PEP guidance that domestic PEPs remain PEPs for only 12 months unless a known risk exists which indicates their status should remain.
Foreign PEPs still remain as PEPs indefinitely in this amendment. This is at odds with the global trend of moving away from blanket regulations to applying a measured risk based approach. The recently updated Wolfsberg Group’s guidance on PEPs explicitly states the need for the international community to move away from a culture of “once a PEP, always a PEP” and pursue a more risk based approach to how long PEPs should retain their status. For financial institutions this means that they will require screening solutions which can keep pace with these stringent regulations and ones that have the depth of data to cover all existing and pre-existing PEPs worldwide.
How can ComplyAdvantage help?
For companies who deal with both foreign and domestic PEPs these requirements will mean that they need a sufficiently rich and flexible solution in place. At ComplyAdvantage we have an extensive database of global PEPs which are updated daily and enhanced with up to the minute adverse media. Furthermore, flexible hosting solutions enable customers to comply with data protection regulations.
Complex regulations such as these require flexible screening capabilities which are easy to customize to suit your risk. At ComplyAdvantage we use advanced analytics and fuzzy matching capabilities to allow you to tailor our solution to your screening and monitoring needs – allowing you to have different approaches for both your foreign and low and high risk domestic PEP clients. Our seamless ongoing monitoring capability allows you identify changing risks which may need to be reported to FinTrac. And our leading and fully automated case management functionality fully digitizes the AML/CTF risk decision making process.
To find out more about our PEP screening and monitoring solution click here and remain compliant with the amendments to PCMLTFA.