Banks ‘have to get better’ at solving money laundering, says OSFI head
STEFANIE MAROTTA BANKING REPORTER THE GLOBE AND MAIL
Published May 8, 2024
OSFI superintendent Peter Routledge, pictured in Ottawa on Jan. 11, 2023, told a roundtable after an event hosted by the C.D. Howe Institute on May 8 that industry players have opportunities to bolster anti-money-laundering practices as digitalization and geopolitical risks intensify financial crime. The head of Canada’s banking regulator is comfortable with the ability of the country’s largest banks to curb money laundering crimes but says that there is room for improvement.
The Office of the Superintendent of Financial Institutions (OSFI) is developing new processes and guidelines as it adjusts to its expanded mandate, which include overseeing risks related to non-financial and financial crimes at the country’s largest lenders. Over the past year, Ottawa has granted the regulator broader authority to address rising threats to the banking sector.
And last week, media reports disclosed that a U.S. probe into Toronto-Dominion Bank’s weaknesses in its anti-money-laundering practices is tied to a US$653-million money-laundering and drug-trafficking operation.
On Wednesday, at a roundtable with journalists after an event hosted by the C.D. Howe Institute in Toronto, OSFI superintendent Peter Routledge said that all industry players have opportunities to add to their anti-money-laundering practices as digitalization and geopolitical risks intensify financial crime.
“It is incumbent upon regulators and boards of directors to redouble efforts on surveillance detection and response,” Mr. Routledge said. “I’m confident, but am I satisfied with where we are? No, we have to get better.”
Prime Minister Justin Trudeau’s government has been bolstering enforcement measures on Canada’s banks, including new tools to address weaknesses in Canada’s anti-money-laundering regime by expanding the powers of OSFI and the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC).
That heightened focus on enforcement comes as Canada prepares for an evaluation by the Financial Action Task Force, a global body that sets standards to combat financial crime.
Canada’s banks have been thrust into the spotlight as U.S. and Canadian regulators crack down on financial crime.
TD expects monetary and non-monetary penalties from the current U.S. investigation, and some analysts have estimated that the amount could range as high as US$2-billion.
The U.S. Office of the Comptroller of the Currency in February said that it had imposed a US$65-million fine on Royal Bank of Canada’s U.S.-based subsidiary, City National Bank, after the regulator found failings in many of the bank’s internal controls and risk-management processes.
Last week, Canada’s financial crimes watchdog imposed its largest-ever monetary penalty on TD – nearly $9.2-million – after a compliance examination found the lender had faulty anti-money-laundering controls.
FinTRAC also levied penalties on Royal Bank of Canada and Canadian Imperial Bank of Commerce last year related to weaknesses in the banks’ anti-money-laundering procedures.
While FinTRAC is the anti-money-laundering authority in Canada, OSFI is in the process of implementing its own procedures to oversee financial crime risks at federally regulated banks. Mr. Routledge said that OSFI plans to distinguish its responsibilities from those of FinTRAC.
When FinTRAC finds an issue at a financial institution, it will share those details with OSFI to engage with the bank’s senior executives and board of directors to remediate the issue, Mr. Routledge said.
OSFI also has the ability to impose monetary administrative penalties, but generally does not apply them to the lenders it regulates.
At the event, Mr. Routledge spoke to a room of senior members of Canada’s financial institutions about the regulator’s new rules aimed at tamping down non-financial threats.
In January, OSFI told banks they have one year to comply with the final guidelines on integrity and security issues affecting the country’s financial system, including regulations on how banks manage risks involving cybersecurity, technology, third-party providers, corporate culture and compliance.
The changes come as regulatory requirements rise in Canada and the United States, more stringent rules prompted in part by the threat of a recession, the banking crisis unleashed in March 2023 and mounting geopolitical tensions. While those changes are intended to enhance the stability of the financial system, they could also crimp bank profits as higher expenses and slower loan growth weigh on balance sheets.
On the integrity and security guidelines, Mr. Routledge said OSFI’s role is not to establish those rules for the banks, but rather to ensure banks set and uphold standards that maintain stability.
“We have an in-depth and elongated consultation processes, and if you think we’re being rules-based and that undermines a broader contribution to public confidence in the Canadian financial system, then call us out,” Mr. Routledge said in response to an audience question. “We welcome the challenge. Steel sharpens steel. We’ll get better if you criticize us.”
