Section 6

What is client identification?

The process of verifying the identity of individuals and confirming the existence of entities

Why is client identification important?

To detect prevent and manage money laundering and terrorist financing risk

What is KYC?

Know Your Client is an ongoing risk-based process used to identify verify understand and monitor clients

Is KYC a one-time requirement?

No it continues throughout the client relationship

Why is KYC important?

It helps prevent fraud identity theft money laundering and terrorist financing

What is CDD?

Client Due Diligence

What is the objective of CDD?

To understand expected client behaviour and identify suspicious activity

What is EDD?

Enhanced Due Diligence

When is EDD required?

For higher-risk clients relationships or transactions

What are the core components of CDD?

Client identification verification risk assessment and ongoing monitoring

What are the five KYC policy elements?

Client Acceptance Client Identification Client Verification Risk Management and Accounts and Transaction Monitoring

What is Client Acceptance?

Criteria for accepting or rejecting clients before doing business

What is Client Identification?

Collecting required information about the client

What is Client Verification?

Confirming the client is who they claim to be using reliable independent information

What is Risk Management in KYC?

Assigning client risk and applying appropriate controls

What is Accounts and Transaction Monitoring?

Ongoing review of client activity for unusual or suspicious behaviour

Must transaction monitoring be risk-based?

Yes

Are reporting entities expected to investigate clients?

No but they must recognize suspicious activity

What should KYC policies describe for high-risk clients?

What monitoring occurs how often it occurs and how it is reviewed

What are the five KYC risk categories?

Reputational Operational Legal Financial and Concentration risk

What is Reputational Risk?

Damage to the organization's reputation from facilitating illegal activity

What is Operational Risk?

Losses caused by failed processes systems or controls

What is Legal Risk?

Exposure to fines penalties lawsuits or prosecution

What is Financial Risk?

Losses caused by fraud or inability to recover funds

What is Concentration Risk?

Excessive exposure to one client or related group

What are the three methods to verify an individual's identity?

Government-issued photo identification Credit file Dual process

What three qualities must government-issued photo identification have?

Authentic Valid and Current

What does authentic mean?

Genuine original credible and issued by the proper authority

What does valid mean?

Not altered counterfeit revoked or suspended

What does current mean?

Not expired

Are municipal government photo IDs acceptable?

No

Can government-issued photo identification be verified online?

Yes using technology that authenticates the document and matches it to the individual

Is simply viewing identification over video sufficient?

No technology must authenticate the document and compare it to the individual

What information must appear on acceptable government-issued photo identification?

Name Photograph and a unique identifying number

What information must be recorded when using government-issued photo identification?

Name verification date document type document number issuing jurisdiction and expiry date if shown

Name four acceptable government-issued photo IDs.

Drivers licence Passport NEXUS card Permanent Resident Card

What are the requirements for the credit file method?

Canadian credit bureau at least three years old matching the client's name date of birth and address

Must the credit file search occur at the time identity is verified?

Yes

Can a credit file be requested without obtaining a credit assessment?

Yes

Name two Canadian credit bureaus.

Equifax and TransUnion

What records must be kept when using the credit file method?

Name search date bureau name and credit file number

What does the dual process method require?

Information from two different reliable sources

What information is commonly combined in the dual process method?

Name and address Name and date of birth Name and financial account confirmation

Can dual process information come from the client?

No

Does the client need to be physically present for the dual process method?

No

Name three examples of dual process sources.

Utility bill Bank statement Birth certificate

Can a reporting entity rely on another party to verify identity?

Yes

Who remains legally responsible when another party verifies identity?

The reporting entity

What is required before relying on an agent or mandatary?

A written agreement or arrangement

When opening a corporate account what must be confirmed?

The corporation's existence name address and directors

What documents can confirm a corporation exists?

Certificate of incorporation Active corporate status certificate or similar corporate record

What additional information must be obtained for corporations?

Ownership control and organizational structure

What is beneficial ownership?

Individuals who directly or indirectly own or control 25 percent or more

Who can be a beneficial owner?

Only an individual not another corporation or entity

What ownership percentage triggers beneficial ownership obligations?

25 percent

What new reporting obligation began October 1 2025?

Beneficial ownership discrepancy reporting

Where are beneficial ownership discrepancy reports submitted?

Corporations Canada

Within how many days must a discrepancy report generally be filed?

30 days unless resolved sooner

What is a business relationship?

An ongoing relationship involving financial transactions or services

When is a business relationship established for account-based sectors?

When an account is opened

What major obligation begins once a business relationship exists?

Ongoing monitoring

Why is ongoing monitoring required?

To detect suspicious activity update client information and reassess risk

Is a one-time transaction normally a business relationship?

No

How often should high-risk client information be updated at minimum?

At least every two years

What client automatically becomes high risk when a Listed Person or Entity Property Report is filed?

That client

What is a third party for AML purposes?

The person giving instructions for the transaction

Is third party determination about ownership of funds?

No it is about who gives the instructions

A mother sends her son to complete a transaction on her behalf who is the third party?

The mother

When is third-party determination required?

Large cash transactions account openings client information records and other prescribed situations

Do employees acting on behalf of employers create third-party situations?

Yes

What is a politically exposed person PEP?

A person holding or having held a prominent political or governmental position

What is a head of an international organization HIO?

The head of an organization established by the governments of multiple countries

Why are PEPs and HIOs higher risk?

They have greater exposure to corruption money laundering and terrorist financing risk

How long does foreign PEP status last?

Forever

Are foreign PEPs automatically high risk?

Yes

How long does domestic PEP status last after leaving office?

Five years

How long does HIO status last after leaving office?

Five years

Who are considered family members of a PEP or HIO?

Spouse parents children siblings and parents of a spouse or common-law partner

What is a close associate of a PEP or HIO?

Someone closely connected through personal or business relationships

Are domestic PEPs automatically high risk?

No they must be risk assessed

What additional measures apply to high-risk PEPs and HIOs?

Source of wealth enhanced due diligence and enhanced ongoing monitoring

What is source of wealth?

How a person accumulated their overall wealth

What is source of funds?

The origin of money used for a specific transaction

What red flag may indicate a PEP is concealing identity?

Using corporate structures family members or close associates to hide ownership

Can a SIN be used to verify identity?

Yes

Should a SIN ever be reported to FINTRAC?

No

Must a client be re-identified every time they return?

No unless there are doubts about the previous identification

If a business account has more than three authorized persons how many must be identified?

At least three

What is a public body for AML purposes?

Government departments municipalities and designated hospital authorities

What threshold applies to EFT identification?

$1000 or more

What threshold applies to foreign exchange identification?

$3000 or more

What threshold applies to virtual currency exchange identification?

$3000 or more

What threshold applies to MSB virtual currency remittances?

$1000 or more

What threshold applies to DPMS identification?

$10000

What threshold commonly triggers PEP transaction obligations?

$100000

What beneficial ownership percentage should be memorized?

25 percent

What are the key thresholds to know from this module?

1000 3000 10000 100000 25 percent and two years

What is the biggest exam takeaway from this module?

KYC is an ongoing risk-based process not simply client identification

What is the purpose of KYC information?

To support risk assessment ongoing monitoring and suspicious transaction detection

What are the five major KYC risk areas?

Client type Place of origin Products and services Warning lists High-risk situations