If you work in wealth, you know that most of your rules are set by the securities regulators, with one important exception: how you check the identity of your clients. In Canada, those rules are set by FINTRAC, the government agency charged with stopping financial crime. These directives ensure the wealth management industry has robust standards for verifying clientele and provide a barrier against bad actors looking to launder money and finance terrorism.
Any wealth management professional should have a basic understanding of these guidelines. Unfortunately, official FINTRAC guidelines are often difficult to analyze and glean actionable information. This article will provide a step-by-step breakdown of the standards established by FINTRAC in common language. If you have any further questions about these guidelines, please refer to the official FINTRAC guidelines.
Verifying a person or entity’s identity is usually done via a government-issued photo ID or credit file, but other options are available for special cases.
Identity verification processes not only provide strong protection against money laundering but they also allow wealth management firms to better understand their clients and evaluate their risk profiles and tolerances.
FINTRAC outlines several different methods for specific situations, each with unique requirements. This process isn’t just about verifying identity—it’s about saving the information and storing it in your client file in an auditable manner.
When building a FINTRAC compliance program, it is crucial to outline the measures taken to verify someone’s identity, including those that confirm authentic, valid, and current credentials. It’s also a good idea to include any measures you intend to use to update that information on a regular basis in case of any changes.
Below is a simplified version of the FINTRAC guidelines, focusing on the essential information required for each step:
This method requires an identity document from a federal, provincial, or territorial government (or an equivalent document from a foreign government).
This document must be authentic, valid, and current and contain the following information:
For this method to be valid, you must record the following information:
The photo ID must be matched to the person opening the account’s name and appearance. However, this process must be performed in person, making it a clunky and suboptimal choice for firms that want to service clients efficiently.
Fortunately, if you can’t meet the client in person, you can fall back on using the photo ID as one of the factors in the dual-process method, by supplementing it with a credit file lookup or another document.
This method implies using a Canadian credit bureau to run a credit file information check for identification purposes, which can be done directly within Mako. Equifax and Transunion offer these services in Canada. This check must include the following up-to-date information:
Once this check is successful, you must keep the following information for your records:
The credit file method is our preferred method of identity validation, as it provides a great customer experience, and can be integrated directly into a Mako digital onboarding workflow using APIs, allowing clients to sign up for your services quickly and easily.
This method is done by combining two of the following steps:
The two categories of information sources used to verify a person’s identity must be different. If a credit bureau aggregates tradelines, then each tradeline can be used as a distinct source. Mako also offers this method.
Keep the following information for your records in the event of an audit:
There is an interesting loophole here: if you try to use the Credit File method and the credit report has existed for more than six months but less than three years, you can supplement the credit file with a second factor to consider the client validated.
This method relies on verification through an affiliate that is part of the same registered entity (RE) as your business, as described in section G of this document. If this RE has executed a valid and current identity verification via the government ID, you can use the same data for your purposes.
You must confirm and keep the following information for your records:
If another RE whose data you have access to has previously confirmed a person’s identity via the government ID method, you can rely on this information to perform an identity check.
During this type of check, the following information must be checked and preserved in your records:
If you have previously verified a person’s identity and the information is still valid and current, you can use the previous check as a FINTRAC-compliant method. However, it is your responsibility to maintain this information and ensure it is refreshed on a regular basis.
According to the FINTRAC guidelines, an entity can be a corporation, a trust, a partnership, a fund, or an unincorporated association or organization. However, the rules are slightly different for corporations:
Verifying the identity of an entity is done by offering documents stating the date and members of the entity, such as:
This information must be kept and maintained in your records for both:
Wealth and asset management firms also have to validate the identity of the representatives of the entity, specifically those authorized to open or transact on the account – not necessarily the ultimate beneficial owners. The good news is you’re only required to verify the identity of a maximum of three individuals on a single entity. To do that, you can use the individual methods listed above.
Since it's common in wealth and asset management to onboard households that include a couple of key individuals and a holding company or family trust, Mako designs household onboarding workflows that ensure both entities and individuals are validated in the right order and eliminate duplicate validations.
The guidelines may seem overwhelming at first, but it’s crucial to have a basic understanding of them in order to be compliant. However, the key takeaway here is that this process is far too time-consuming and complicated to undertake on your own.
By using a digital onboarding platform like Mako, you can fully automate this process and dramatically reduce the rate of error compared to manual verification, for both entities and individuals. Speeding up this necessary step eliminates frustration for your clients, gives your advisors time to focus on building their client relationships, and improves the efficiency of your back office.
Contact us today for a demo if you’re ready to discuss automating your KYC process.
Photo by Christopher Austin on Unsplash
