Banks “Have To Get Better” At Combating Money Laundering, Shares OSFI Director

The Office of the Superintendent of Financial Institutions (OSFI) is creating new procedures and policies in response to its broadened mandate, which now includes supervising risks associated with both financial and non-financial crimes at the biggest lenders in the country, according to media sources.

On Wednesday, the event featured a speech by Mr.  Routledge, an address to the CEOs and other senior managers of Canada’s financial institutions about the prudential regulator’s new rules to target risks posed by non-financial factors.

In the previous year, Ottawa has already empowered the regulator with a broader authority to address fast-emerging risks to the banking facilities. In addition, media reports from last week revealed that a US investigation into Toronto-Dominion Bank’s TD-T +0.81% increase, the failure of combating anti-money-laundering is connected to a US$ 653 million drug-trafficking and money-laundering scheme.

Rising Enforcement Measures In Canada

The government of PM Justin Trudeau has seen an increase in enforcement measures tied to the banking sector, and this increase is within the new tools to find the weaknesses in the anti-money-laundering regime by providing OSFI and the Financial Transactions and Reports Analysis Centre of Canada with more powers.

This higher level of control is expected as Canada struggles for an audit by the Financial Action Task Force; a global body that adopts standards to combat money laundering and financing of terrorist activities.

Calls For Coordinated Action To Combat Financial Crimes

On Wednesday, after an event organized at the C. D.  Howe Institute in Toronto, OSFI head Peter Routledge made it clear that “all concerned institutes must adopt a progressive attitude to their anti-money laundering practices in the face of cyber security risks and the newly emerging geopolitical risks.”

“It is a shared responsibility of regulators and boards of directors to put more efforts into the surveillance identification and response to cyber criminals,” added Mr.  Routledge.  “Am I confident? Absolutely!”, but a question like this did cross my mind: “Am I satisfied with where we are?”. No, we have to change for the better, otherwise we will fall anytime. ”

Regulatory Action For AML Breaches

As Canadian and American regulators tighten on criminal activity in the financial system, the country’s institutions have become increasingly scrutinized.

TD predicts, that the upcoming US investigation will lead to monetary and non-monetary fines, while analysts suggest, this sum can be up to US$2-billion.

The Office of the Comptroller of the Currency, the regulator of US banks, announced in February 2023, that it had imposed a penalty of US$65 million on its subsidiary of Royal Bank of Canada (RBC), City National Bank, following the discovery of failure of several of its risk management and compliance procedures.

Last week, the Canadian financial crime enforcement agency levied the biggest sanctions on TD – with a $9.2M fine –the compliance analysis showed that the lender keeps inefficient anti-money laundering controls.

Distinctive Yet Integrated Role Of FinTRAC and OSFI

Mr.  Routledge pointed out that OSFI would potentially differ from FinTRAC about each entity’s area of oversight. While FinTRAC is carrying out that job as the anti-money-laundering authority in Canada, OSFI is set to implement its procedures so that it can supervise the financial crime risks within federally regulated banks.

If FinTRAC articulates the problem, it will share the details with OSFI so they will be sure to coordinate with the heads of the departments and the board of directors to draw up strategies for solving the issue, shared by Mr.  Routledge.

One of the functions of OSFI is that it can impose a monetary administrative penalty.  However, it usually avoids doing such for the other lenders it controls.

Must Read: Annual Report 2023: Money Laundering Reporting Office Switzerland

OSFI Financial Regulations

In January, OSFI gave banks twelve months to comply with the final standards of integrity and security affairs, which are related to the problems of the national financial system, like cybersecurity and technological risks, risk management about third-party providers, corporate culture, compliance, and other issues.

Such reforms have taken place with the US and Canada bringing a rise in regulatory requirements, the tougher rules coming mainly out of recession threat originally, bank crisis in March 2023, and rising geopolitical tensions. And though regulatory changes are meant to bring more stability to the financial sector, they might as well be a great danger to banks’ profits because higher costs and slower loan growth turn into heavy burdens for banks’ balance sheets.

“We have elaborated and detailed consultation processes, and if you think that we are being rule-based and it eliminates a chance to contribute to a broader public confidence in the Canadian financial system, I challenge such a thought,” Mr. Routledge responded after having an audience question. “We accept this challenge. We’ll serve our best if you criticize us.”