Canada's Beneficial Ownership Evolution
The State of Play and Future of Beneficial Ownership in Canada
In recent years, the global spotlight on beneficial ownership transparency has intensified, driven by the need to combat financial crime, tax evasion, and corruption. Canada has been part of this conversation, making strides to enhance transparency in corporate ownership and align with international best practices. However, as with any evolving regulatory framework, there are challenges and opportunities on the horizon.
Canada’s Approach to Beneficial Ownership
Canada’s beneficial ownership framework has undergone significant development in the last two years, particularly with the implementation of requirements for corporations to maintain registers of individuals with significant control (ISCs). These efforts align with global initiatives such as the Financial Action Task Force (FATF) recommendations, which emphasize the importance of beneficial ownership transparency to prevent misuse of corporate structures.
Beneficial Ownership Registry: Progress So Far
In 2023, the Canadian government announced plans for a publicly accessible beneficial ownership registry to be operational by the end of 2025. This registry aims to:
- Enhance transparency: Provide public access to information about the true owners of corporations
- Support law enforcement: Enable authorities to investigate and prosecute financial crimes more effectively
- Improve compliance: Facilitate due diligence for financial institutions and other obligated entities
While the registry’s implementation is a step forward, it remains a work in progress. Issues such as data accuracy, privacy concerns, and inter-jurisdictional coordination among provinces and territories need to be addressed.
Discrepancy Reporting Requirements
Discrepancy reporting, which involves financial institutions and other reporting entities identifying and flagging inconsistencies between a client’s declared beneficial ownership information and public records, is a key component of Canada’s framework. This mechanism will:
- Promote accountability: Ensure that beneficial ownership information is accurate and up to date
- Support risk management: Help financial institutions detect and mitigate potential financial crime risks
While some progress has been made, discrepancy reporting faces challenges related to regulatory clarity, the burden on reporting entities, and the need for robust enforcement mechanisms.
Challenges in Implementation
Several hurdles must be overcome to fully realize the potential of Canada’s beneficial ownership initiatives:
Privacy vs. transparency
Balancing public access to ownership information with individual privacy rights remains contentious. Safeguards are needed to prevent misuse of publicly available data.
Data accuracy and verification
Ensuring the accuracy of information submitted to the registry is critical. Without proper verification mechanisms, the registry’s reliability could be undermined.
Provincial coordination
Canada’s federal structure complicates the implementation of a unified registry. Harmonizing provincial and federal requirements is essential for seamless functionality.
Compliance burden
Reporting entities may face challenges in integrating discrepancy reporting into their existing compliance frameworks, particularly smaller institutions with limited resources.
The Road Ahead
On November 30, 2024, draft amendments were published for public consultation (“Amendments”), prescribing how certain financial crime measures contained in the Federal Budgets from 2022 to 2024 will be implemented. Submissions regarding the draft Amendments may be made to Canada’s Department of Finance by December 30, 2024. The Amendments propose another step towards a national approach to beneficial ownership transparency in Canada for Anti-Money Laundering (AML) purposes, which ultimately adds to reporting entities Know Your Customer (KYC) procedures.
Currently, businesses regulated by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) are already required to obtain and verify the accuracy of beneficial ownership information of their corporate/entity clients and apply enhanced due diligence and monitoring procedures for business relationships that they identify as high-risk. At the same time, in January 2024, Canada launched a public, searchable beneficial ownership registry of corporations incorporated under the Canada Business Corporations Act (“CBCA”). As a result of the Amendments, a FINTRAC reporting entity who engages with a CBCA corporation must not only obtain beneficial ownership information and take reasonable measures to confirm the information’s accuracy on an ongoing basis, but the regulated entity would also need to compare that information against the CBCA beneficial ownership registry and report any “material” discrepancy it finds.
Specifically, once a reporting entity identifies a “material discrepancy” between the information they obtained and what is in the public registry for a CBCA corporation, they must report the discrepancy to the Director under the CBCA within 15 days, along with details about the reporting entity, and keep a copy of any acknowledgment of receipt of the report. The Amendments do not define what constitutes “material discrepancy”, however, it excludes discrepancies including spelling errors, minor variations in name and address, and the presence of service address in one source and a residential address in the other.
Global Alignment of Beneficial Ownership Requirements
Canada's evolving beneficial ownership framework aligns with global efforts to enhance transparency and combat financial crime, as emphasized by the FATF. While countries like the UK have already implemented publicly accessible registries, Canada's phased approach reflects its federal structure and privacy considerations. Globally, challenges such as data accuracy, inter-jurisdictional coordination, and balancing transparency with privacy are common, but Canada’s emphasis on discrepancy reporting and integrating registries into AML processes demonstrates a progressive step. However, achieving consistency across provinces and aligning with international standards will be crucial for Canada to remain competitive and effective in the global fight against financial crime.
Resources:
The key resource for more information on beneficial ownership requirements in Canada is Canada’s Department of Finance, which provides updates on legislative amendments, consultations, and implementation timelines. Additionally, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) offers guidance for reporting entities on beneficial ownership obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). The Canada Business Corporations Act (CBCA) is also critical, as it governs the requirements for beneficial ownership registries.