Role of AML/ATF in the Financial System Remarks by Assistant Superintendent Ted Price Office of the Superintendent of Financial Institutions (OSFI)

Toronto, Ontario
April 27, 2010

ROLE OF AML/ATF IN THE FINANCIAL SYSTEM

Canada is a strong supporter of international standards for combating money laundering and terrorist financing as set out by the Financial Action Task Force (FATF).

Protecting our financial system from money laundering and terrorist financing abuse is critical to its safety and soundness, and this morning you will hear a lot about the things OSFI is doing to implement our AML/ATF regime.

AML/ATF PROGRAMS – MANAGING HIGH RISK

Our banks and insurance companies are front-line participants in the AML/ATF regime.

The size of Canada’s federally regulated sector means, in practical terms, that our regime is only as good as the combined strength of risk management and compliance measures implemented by our financial institutions.

There is no doubt that institutions are putting a lot of effort into AML/ATF programs. However, although their AML/ATF programs are generally seen as adequate, there is more work to do. OSFI is not satisfied with the overall quality of the measures in place for identifying and managing higher risks and there is also concern about oversight of these measures by senior management and the board of directors on an enterprise-wide basis.

A good appreciation in the institution for which activities carry higher money laundering and terrorist financing risks is essential. This will lead to appropriate decision-making about what enhanced due diligence measures for higher risks should look like, where they should be applied, and how.

Although some institutions have good control processes in place, too many others have not sufficiently assessed the true risks in their business, or identified higher risks, or applied appropriate enhanced due diligence measures to higher risks enterprise-wide once these are identified.

OVERSIGHT

Effective implementation of the AML/ATF program by the Chief Anti-Money Laundering Officer (CAMLO) should be monitored regularly by senior management and the board. This oversight process, as with all risk monitoring, should be a fundamental component of an institution’s AML/ATF program.

Effective oversight also requires informed, and appropriately targeted, independent procedures testing by the internal audit function.

OSFI expects to see a firm and ongoing commitment by the Board and CEO to embedding a culture of effective control over money laundering and terrorist financing risks. This commitment should be evident in management oversight of the program, allocation of adequate resources (staff and dollars) and a culture of active assessment of risk together with appropriate control measures. The recognized importance of AML/ATF controls should flow from the top down.

While we understand the temptation, devoting fewer resources to the AML/ATF compliance program because of the international financial crisis, is not appropriate.

AML/ATF A KEY COMPONENT OF G20 ACTION

Although the headlines focus on capital requirements, credit and the need for effective regulatory supervision, the G20 Leaders’ response to the crisis included a 2009 declaration of commitment to “maintain the momentum in dealing with...money laundering, proceeds of corruption, terrorist financing and prudential standards”. You will be aware that the FATF issued a statement in February naming a number of countries of concern which are being monitored by the FATF.

G20 action in 2009 also included a request to the FATF to step up its participation in the fight against corruption – “by prioritizing work to strengthen standards on customer due diligence, beneficial ownership, and transparency”. We can expect standards to rise in these areas in the coming years. Client due- diligence processes need to ensure financial institutions know who they are dealing with. OSFI firmly supports the proposition that no client relationship or structure, and no jurisdiction, should be able to provide a cover of secrecy for money launderers and terrorism financiers.

SUMMARY

Effective oversight by an institution’s board of directors, CEOs and Chief Agents, is critical to AML/ATF program effectiveness. It is up to them to set the tone for proactive AML/ATF efforts by championing the work of the program and the CAMLO throughout their organizations.

Institutions should improve their ability to identify high risk activity, and apply enhanced measures to such activity once identified.

The bar has risen significantly and it is likely to rise again. We appreciate the work you have done to date on the AML/ATF front, and we look forward to continuing our positive working relationship into the future.

Thank you.