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Compliance

Enhanced Due Diligence (EDD)

Heightened verification and ongoing monitoring required for high-risk clients, including PEPs and complex account structures.

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Definition

EDD goes beyond standard customer due diligence by adding steps such as verifying the source of wealth, obtaining senior management approval to open or maintain the account, and conducting more frequent and intensive ongoing monitoring of account activity. Under PCMLTFA Regulations, EDD is mandatory for foreign PEPs, heads of international organizations, and their family members and close associates. Dealers may also apply EDD on a risk-based basis for clients assessed as high-risk through the firm's AML risk assessment - for example, clients in high-risk jurisdictions, clients with complex ownership structures, or clients whose transaction patterns are inconsistent with their stated profile.

Source

PCMLTFA Regulations s.9.3-9.4; FINTRAC Guideline 6G

Where this shows up on the CIRE

  • Outcome 6.1

Test yourself

Two real CIRE-bank questions on this exact outcome. Click to reveal the answer and the rule citation.

  1. 1

    Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, a financial entity that receives cash in a single transaction of $10,000 or more must file which type of report?

    Outcome 6.1 · click for answer

    A.A Suspicious Transaction Report (STR) with CIRO.
    B.A Large Cash Transaction Report (LCTR) with FINTRAC within a prescribed number of business days.Correct
    C.A Currency Transaction Report with the Canada Revenue Agency.
    D.An Unusual Transaction Report with the Office of the Superintendent of Financial Institutions.

    The PCMLTFA requires reporting entities to submit a Large Cash Transaction Report to FINTRAC when they receive cash of $10,000 or more in a single transaction, or two or more transactions totalling $10,000 or more within 24 consecutive hours that the entity knows or suspects are related. The report goes to FINTRAC, Canada's financial intelligence unit, not to CIRO, the CRA, or OSFI. This $10,000 threshold is a well-established and well-publicized compliance benchmark.

  2. 2

    A Participant's trader has specific knowledge that a client is about to submit a large buy order for 500,000 shares of a small-cap company that will likely move the price significantly. Before entering the client's order, the trader buys 20,000 shares in the firm's principal account. Which UMIR provision does this most directly violate?

    Outcome 6.1 · click for answer

    A.UMIR 5.3(1); client priority, because the trader is trading alongside the client order.
    B.UMIR 10.16; the gatekeeper obligation, because the trader failed to report the order to compliance.
    C.UMIR 4.1(1)(a); frontrunning, which prohibits a Participant with specific knowledge of a client order that could reasonably be expected to affect market price from entering a principal order in the same security before the client order is entered.Correct
    D.UMIR 2.2(2)(b); ramping, because the trader's purchases create successively higher prices.

    UMIR 4.1(1)(a) prohibits a Participant with specific knowledge of a client order that could reasonably be expected to affect the market price from entering a principal or non-client order in the same security (or a related security or derivative) before the client order is entered. Trading the firm's own account ahead of a known client order that will move the price is classic frontrunning. Client priority under UMIR 5.3 is a related but distinct obligation addressing trading alongside an existing client order at the same price. Ramping under 2.2(2)(b) involves successive purchases designed to drive price artificially, which is not the primary characterization here.

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