Professional ResponsibilityChanges to Client Identification & Verification Regulations in January 2020
Changes Coming to Client Identification and Verification Regulations in January 2020: What you need to know
Adopting the FLSC New Model Rules
At its September meeting, NSBS Council adopted the Federation of Law Societies of Canada’s new No Cash and Client Identification and Verification Model Rules (“Model Rules”). Regulation amendments to client identification and verification, and the receipt of cash will come into effect January 1, 2020.
All lawyers and firms must review and revise their processes to ensure they comply with the existing and new rules. These rules are extremely important in the fight against money laundering and terrorist financing in Nova Scotia, Canada and internationally.
While lawyers are subject to the Criminal Code, they are exempt from the federal legislative regime under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) due to constitutional principles that protect the rights of clients and the obligations of legal professionals within confidential relationships.
As a result, the legal profession adopted model rules for lawyers and notaries. These rules are designed to reflect the government’s legislative objectives under PCMLTFA, while protecting the rights of clients and the obligations of legal professionals.
Following considerable consultation with the profession and with regulators, the Federation of Law Societies’ Anti Money Laundering and Terrorist Financing Working Group (AMLTF) delivered this final report with recommendations to the Federation Council in October 2018.
The AMLTF working group recommended amendments to the current rules related to the receipt of cash and to client identification and verification. The working group also proposed the adoption of a new model rule regarding the use that may be made of lawyers’ trust accounts.
At the Federation’s Council meeting, every Canadian jurisdiction supported the new and amended rules and the complete package of new model rules was adopted. Adopting and enforcing consistent rules is a critical part of the Federation and the law societies’ strategy to address the risks of money laundering and terrorism financing activities.
The Federation’s guidance document outlines the responsibilities of Canada’s legal professions. Review Guidance for the Legal Profession: Your Professional Responsibility to Avoid Facilitating or Participating in Money Laundering and Terrorist Financing.
Highlights of the Amendments to the Model Rules
“No Cash” rule:
- specify that the exceptions to the cash limit apply only where the lawyer or law firm is providing legal services
- delete the exemption for cash received “pursuant to a court order, or to pay a fine or penalty” because it was determined to be of limited value and may present a risk of money laundering and terrorist financing
- add definitions of terms used in the rule: disbursements, expenses, financial institution, financial services cooperative and professional fees
Client ID rule:
- amend definitions of the Client Identification Rule, reflecting changes to the corresponding definitions in the federal regulations
- amend definition of “financial institution” to incorporate changes in the federal regulations (referred to there as “financial entity”), including the addition of references to a “financial services cooperative” and a “credit union central”
- amend definitions of “funds”, “public body” and “securities dealer” to maintain consistency with the government regulations
add specific reference to the obligation on a lawyer to “know your client” in reg. 4.13.3 (amended 4.13.2)
delete the words “take reasonable steps to” from reg. 4.13.4 (amended 4.13.8) to match changes in the federal regulations
- amend the provisions of the Client Identification reg 4.13.7 (amended 4.13.13) to specify the documents and information that may be relied upon to verify an individual’s identity; these changes reflect extensive amendments to the federal regulation
- amend the rule to incorporate new provisions in the regulations on the verification of the identity of children (amended 4.13.13)
- create a requirement to obtain, rather than simply to make reasonable efforts to obtain, the names of all directors of an organization, and the names and addresses of the owners of the organization; tracking the changes to the federal regulations, the amended rule would also introduce a requirement to “take reasonable measures to confirm the accuracy of the information obtained (amended 4.13.14 and 4.13.15)
- amend reg 4.13.9 (amended 4.13.14) to require lawyers to obtain information on beneficial owners of an organization; this change addresses a specific criticism of the law society anti-money laundering and terrorist financing rules that has been raised by the government and the FATF
- reduce the allowed time to 30 days for verification, which is in keeping with the federal regulations; this addresses concerns that a transaction could be completed before the expiration of the 60-day deadline for verification, thus undermining the purpose of the requirement (amended 4.13.20)
- add a new provision requiring ongoing monitoring of clients; such a requirement is included in the revised federal regulations (amended 4.13.30)
- add a reference to ongoing monitoring to the provision requiring a lawyer to withdraw from representation of the client if, once retained, the lawyer becomes aware that they would be assisting the client in fraud or other illegal conduct (amended 4.13.32)
Finally, there are additions to Part 10 of the Regulations that explicitly provide that funds paid into or out of a trust account must be directly related to legal services provided by the lawyer or law firm. In addition, on completion of the legal services to which the funds relate, a lawyer or law firm must take reasonable steps to obtain appropriate instructions to pay out the funds as soon as practicable.
Learn more November 7th at the LIANS/NSBS Solo & Small Firm Conference
Join us Thursday, November 7, 2019 from 9 AM to 4 PM at the Hotel Halifax. There will be a session focused on Trust Accounts Basics, Anti-Money Laundering, and Anti-Terrorist Financing with Past-President Frank DeMont QC and the NSBS’ Kate Shewan, and Jocelyn Glynn MacNeill. Learn more.
Questions? Contact the Society’s Professional Responsibility Counsel Elaine Cumming at email@example.com.