KYC is an abbreviation for Know Your Customer and can refer to government regulations designed to prevent money laundering, financing terrorism and other crimes involving money. It can also refer to the policies, procedures and technology used by banks and financial services companies to follow KYC regulations.
In Canada, the primary focus of KYC is directed at money laundering from drug traffickers and organized crime. The government created the Financial Transactions Reports Analysis Centre of Canada, also known as FINTRAC, in 2000 to serve as the country’s financial intelligence unit. Updates to FINTRAC regulations in June 2016 stipulate acceptable methods of verifying the identity of clients to comply with anti-money laundering and KYC regulations.
The following entities are subject to anti-money laundering and KYC regulations:
- Banks, credit unions, and other financial institutions
- Life insurance companies, brokers, and agents
- Securities brokers
- Real estate brokers and agents
- Agents of the Crown
- Accountants and accounting firms
- Attorneys
- Dealers in precious metals and stones
- Notaries located in Quebec and British Columbia
Canadian law requires these organizations to exercise “due diligence” and have procedures in place to verify the identification of people opening accounts. In addition to verifying a client’s identity, due diligence procedures require these entities to familiarize themselves with the client’s business and transaction habits, identify suspicious transactions, and notify the authorities when suspicious transactions occur. Anyone identified as a politically exposed person, or PEP, is subject to enhanced due diligence procedures. A PEP is anyone who's performs an entrusted public function or holds a public office, as well as anyone closely tied to that person.
Despite the rules and regulations in place, a 2010 report concluded that the authorities could identify a suspect in only 18% of all money laundering cases and only 37% of prosecuted cases resulted in convictions. In many instances defendants pleaded to a lesser charge.
As of 2017, the government has proposed regulations to extend current KYC regulations to electronic financial transactions and cybercurrency.
