OSFI increases focus on money laundering

The head of Canada’s banking regulator says he’s ramping up scrutiny of money laundering in the financial sector as risks increase.

Peter Routledge, who leads the Office of the Superintendent of Financial Institutions, said regulators and banks are having to play catch-up on how criminals are trying to move funds.

“The sophistication of money laundering techniques in a world of artificial intelligence and deep fakes and all that, has run out ahead a little bit of, certainly regulators, and financial institutions,” he said on Friday.

“Not so far that we can’t make adjustments in the next year or two to tighten things up, but enough that we need to move, and we are moving.”

Speaking at the TD Securities Financial Services Conference in Toronto, Routledge said the regulator is also increasing its focus in the area after parliament amended OSFI’s mandate last summer to explicitly include monitoring how well financial institutions protect against threats to their integrity and security.

Fintrac, Canada’s financial intelligence agency, has also signalled increased scrutiny of the issue. In December, the agency levied a $7.5-million penalty against Royal Bank of Canada and a $1.3-million penalty against CIBC last month for non-compliance with anti-money laundering and terrorist financing measures.

In the 2022-2023 financial year, by comparison, it levied $1.1 million in total fines across all business lines.

Routledge said OSFI would be working more closely with Fintrac as digitization and the more integrated global economy lead to higher risks of money laundering.

The regulator will also be taking its message to financial institutions that they need to step up efforts against the problem, he said in a media availability following the event.

“I can tell you going forward, we certainly will do that, and say to boards of directors, a core part of your responsibility is to ensure your institutions are complying with the laws and the jurisdictions in which they operate, and anti-money laundering laws are laws your institution needs to be redoubling its efforts to ensure compliance.”

The scale of money laundering in Canada could range anywhere from $45 billion to $113 billion, Criminal Intelligence Service Canada estimated in a 2020 report, based on UN estimates that between 2% and 5% of global GDP is laundered annually.

Routledge said the regulator is also increasing focus on climate-related risks, saying they’re fundamentally a financial risk.

The regulator has already mandated the big banks to prepare climate disclosures and transition plans, which will then inform any decisions on capital buffers and other potential measures, but it will be a multi-year process, he said.

“We don’t expect the perfect transition plan tomorrow, but we expect boards to envisage different futures, different transitions and then begin to build plans for adapting to those futures,” said Routledge.

He said OSFI’s mandate captures climate risk comprehensively, and it will continue to focus on capturing the financial risks that climate change could bring, but that it’s best left to other agencies with deeper climate expertise to lead on policy.

“We don’t see OSFI’s role as an institution meant to instigate climate policy. We’re an institution meant to instigate sound risk management of new and emerging risks.”