Opening an Account for a Person or Entity Engaged in the Business of Dealing in Securities Only Outside of Canada

Subsection 9(1), 9(5), 57(1), 57(3), and 57(4) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations.

The purpose of this notice is to clarify the measures that a Canadian securities dealer must take in opening an account in the name of a person or entity that is engaged in the business of dealing in securities only outside of Canada.

Ascertaining Identity & Third Party Determination

Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, when opening an account for a person or entity engaged in the business of dealing in securities only outside of Canada, a Canadian securities dealer must ascertain the identity of every person who is authorized to give instructions in respect of this account, even in cases where the person or entity and the Canadian securities dealer are related through a parent organization. ¹

In addition to ascertaining the identity of every person who is authorized to give instructions, if the account is opened for a corporation, the Canadian securities dealer must also ascertain the name and address of the corporation and confirm the corporation’s existence, and must also ascertain the names of the corporation’s directors. ²

Likewise, if the account is opened for an entity other than a corporation, the Canadian securities dealer must confirm the existence of the entity. ³

Lastly, the Canadian securities dealer must take reasonable measures to determine on whose behalf the person, corporation or entity is acting (“third party determination”) and, where applicable, keep a record indicating among other things, the name and address of that third party as well as the nature of the relationship between the third party and the account holder.

Exceptions to Third Party Determination

There are circumstances in which the Canadian securities dealer is not required to make a third party determination and maintain a record containing this information. This would apply if any of the following conditions are met:

• The account is in a jurisdiction that is a member of the Financial Action Task Force (FATF) ⁴;
• The account is located in a jurisdiction that is not a member of the FATF, but, when opening the account, the securities dealer gets written assurance from the person dealing in securities in the foreign jurisdiction that the jurisdiction in which the account is located has implemented the FATF Recommendations concerning customer identification; or
• The account is in a jurisdiction that is not a member of the FATF and that country has not implemented the FATF Recommendations concerning customer identification, but, when opening the account, the Canadian securities dealer has identified all third parties relating to the account.

A third party record also does not have to be kept for an account if the account is opened by a legal counsel, an accountant or a real estate broker/sales representative and where the Canadian securities dealer has reasonable grounds to believe that the account is to be used only for their client.

Note: The Regulations do not require the Canadian securities dealer to obtain identification documents with respect to a third party. The Canadian securities dealer is only required to record the name, address, and principal business or occupation of the third party, as well as the third party’s relationship with the account holder. Where the third party is a corporation, the corporation’s incorporation number and place of issue must also be recorded.

Non-Face-To-Face Situations - Use of Agents

Where a Canadian securities dealer opens an account for a person or entity engaged in the business of dealing in securities only outside of Canada, the Canadian dealer would have to ascertain the identity of the person authorized to give instructions in respect of an account and make any third party determination as required under the Regulations, unless the exceptions previously noted occur.

When the person is not physically present, the Canadian securities dealer can ascertain the identity by confirming that a cheque drawn by the person on an account of a Canadian financial entity has been cleared, or by confirming that the person holds an account in the person’s name with a Canadian financial institution.

As well, the Canadian securities dealer can rely on an agent to make the face-to-face identification. The Canadian securities dealer must have a written contract with the agent, describing the agent’s responsibilities, and the agent must accept the conditions of the contract. Where a Canadian securities dealer opts to enter into such an arrangement, the ultimate responsibility for ascertaining identity and making any third party determination remains with the Canadian securities dealer.

In the situation where a foreign investor is an existing client of a person or entity dealing in securities only outside of Canada and has been referred to the affiliated Canadian securities dealer, the Canadian dealer cannot rely on the client verification undertaken by that person or entity unless they had entered into a written agreement prescribing that the person or entity engaged in the business of dealing in securities only outside of Canada was acting as an agent for the Canadian securities dealer.

In all cases, the documentation must be kept in a way that it can be produced within 30 days if so requested. Such documentation should contain information such as the document number used to identify the client, address, etc.

¹This requirement does not apply if the person already has an account with the Canadian securities dealer, or there are reasonable grounds to believe that the account holder is a public body or a corporation that has minimum net assets of $75million on its last audited balance sheet and whose shares are traded on a Canadian stock exchange or a stock exchange that is prescribed by section 3201 of the Income Tax Regulations and operates in a country that is a member of the Financial Action Task Force on Money Laundering. Back

²If the Canadian securities dealer has confirmed the existence of a corporation and ascertained its name and the names of its directors, it is not required to subsequently confirm or ascertain that same information. Back

³If the Canadian securities dealer has confirmed the existence of an entity other than a corporation, it is not required to subsequently confirm or ascertain that same information. Back

⁴The FATF, headquartered in Paris, is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing. The thirty-one current member countries of the FATF, as of October 2005, are: Argentina; Australia; Austria; Belgium; Brazil; Canada; Denmark; Finland; France; Germany; Greece; Hong Kong, China; Iceland; Ireland; Italy; Japan; Luxembourg; Mexico; the Netherlands; New Zealand; Norway; Portugal; the Russian Federation; Singapore; South Africa; Spain; Sweden; Switzerland; Turkey; the United Kingdom; and the United States. The European Commission and the Gulf Co-operation Council are also members of the FATF. For more information on the FATF and current member countries, please consult its website at: www.fatf-gafi.org.     Back