6.10 – Who Must Comply with the Client Verification Rules?

As described on the previous page, the starting point for understanding your obligations with respect to Client Verification is that if you are retained by a client and you engage in, or give instructions with respect to, the receipt, payment or transfer of funds, then you must verify your client’s identity.

Lawyers Who Are Exempt

As with the Client Identification Rules, Rule 1541(3) exempts lawyers wo are:

• providing legal services to an employer (e.g., in-house counsel),
• acting as agent for another lawyer who has already identified (and perhaps verified) the client,
• acting for a client referred by another lawyer who has already identified (and perhaps verified) the client, or
• acting as duty counsel providing legal services as part of a duty counsel program sponsored by a not-for-profit organization (unless the lawyer is involved in a financial transaction).

Exemptions for Defined Clients and Transactions

There are also circumstances where the nature of your client or of the financial transaction will exempt you from the obligation to verify your client’s identity.

You do not have to verify your client’s identity if they are a financial institution, a public body, or a reporting issuer. See Rule 1544(a). For definitions of financial institution, public body, reporting issuer, see Rule 1501.

Additionally, Rule 1544(b) and (c) state that the requirement to verify client identity does not apply:

• in respect of funds:
  • paid by or to a financial institution, public body or reporting issuer as described above,
  • received by the lawyer from a trust account of another lawyer within Canada,
  • received from a peace officer, law enforcement agency or other public official acting in their official capacity,
  • paid or received to pay a fine, penalty, or bail,
  • paid or received for professional fees, disbursements, or expenses, or
• to an electronic funds transfer as defined in Rule 1501.

Note that there is no longer any exemption from the Verification Rules for settlement funds received to settle legal proceedings.

Relying on an Exemption

If you intend to rely on an exemption, you should:

• Review the definitions in Rule 1501 carefully. Do not assume, for example, that every EFT falls within the definition of “electronic funds transfer”.
• Assess each transfer in the transaction to determine whether it is exempt. For example, if you receive funds by electronic funds transfer as defined in Rule 1501, that portion of the transaction does not trigger the verification requirements. However, if you pay the funds out to a non-exempt third party by cheque, the verification rules will be triggered.
• Record the basis on which you determined that the exemption applied and retain this on your file.

This Module introduces the situations where lawyers, clients, or transfers are exempt from the Client Verification Rules. Always consult a current version of the Rules because these rules are technical and precise. This means visiting the Law Society’s website to obtain the most recent version of the Rules on a regular basis. This Module is not a substitute for the actual Rules.