17.7.2 Role Of Kyc Information In Opening Account

The Role of KYC Information in Opening an Account

Gathering Know Your Client (KYC) information is a critical part of the process of opening accounts and taking orders. During this process, you must obtain information about anyone with a financial interest in the account and information about any changes in the client’s circumstances. Compliance with anti-money laundering (AML) and anti-terrorist financing (ATF) laws is also essential.

Financial Interest in an Account

As a mutual fund dealer representative, you should obtain the investment experience and knowledge of all persons with trading authority over the client’s account, as well as KYC information for anyone with a financial interest in the account. Such persons may include joint account holders and beneficiaries of trusts or trust accounts for children.

A trustee has trading authority over the trust. Therefore, understanding the trustee’s investment experience and knowledge is essential, as is the KYC information of the beneficial owner of the account.

Did You Know?

The contributing spouse of a spousal registered retirement savings plan has no financial interest in the account, so KYC information is required only for the non-contributing spouse. However, if the contributing spouse has another account with you, you must obtain KYC information in regard to that account.

Changes in Circumstances

MFDA rules require that KYC information be updated whenever a representative or other employee of the firm becomes aware of a material change in the client’s circumstances. At least once a year, the dealer must request, in writing, that each client notify the dealer of any material change in his or her circumstances.

Anti-Money Laundering and Anti-Terrorist Financing Laws

Federal legislation regarding anti-money laundering (AML) and anti-terrorist financing (ATF) is set out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is the agency authorized to facilitate this legislation.

AML and ATF requirements must be met before any client’s account is opened. Every mutual fund dealer must have processes and procedures in place for this purpose, and it must provide appropriate training to all its employees and representatives. The firm must also appoint an AML compliance officer, often the branch compliance officer.

AML and ATF processes generally focus on the need to verify the identity of every person authorized to provide instructions regarding a client’s account or who has a beneficial interest in that account. Other procedures involve the freezing of accounts of individuals and organizations that appear on a FINTRAC-published list, the reporting of suspicious transactions and attempted transactions, and client identification requirements that apply in special circumstances.

Cash transactions (or a series of transactions) in a single account of $10,000 or more on any given day must be reported to the dealer’s compliance officer.

Glossary

• Know Your Client (KYC): Information-gathering process required to open accounts and take orders, useful for understanding a client’s financial circumstances and compliance with regulations.
• Anti-Money Laundering (AML): Activities and laws aimed at preventing and combating money laundering activities.
• Anti-Terrorist Financing (ATF): Legislation aimed at restricting financial resources for terrorist activities.
• Beneficial Owner: A person who enjoys the benefits of ownership even though the ownership title is in another name.

Key Takeaways

• KYC information is essential for opening accounts, ensuring thorough knowledge of any financial interests, and adaptation to changes in clients’ circumstances.
• Compliance with AML and ATF laws is mandatory, requiring organizations to implement robust procedures and regular training.
• Regular updates of KYC information are necessary to reflect any material changes in a client’s circumstances.

FAQ

Q1: Why is KYC information necessary while opening an account?

A1: KYC information is necessary to understand the financial background of any person involved in a client’s account, which helps in regulatory compliance and better investment advice.

Q2: What should a representative do if they become aware of material changes in a client’s circumstances?

A2: KYC information should be updated accordingly when there is any material change in the client’s circumstances. Dealers must also reach out annually to request clients to inform them of any significant changes.

Q3: What are the roles of AML and ATF laws?

A3: AML and ATF laws help to prevent money laundering and restrict financial resources for terrorist activities. They involve processes like identity verification, suspicious transaction reporting, and account freezing as per FINTRAC guidelines.

Diagram

    graph TD
	  A[KYC Collection] --> B[Client Account Opening]
	  B --> C[AML Checks]
	  B --> D[Client receives Advisory]
	  A --> E[Diligence Review]