On September 15, 2016, the Financial Action Task Force (FATF) released its highly anticipated Mutual Evaluation Report (the Report) on Canada’s anti-money laundering and counter-terrorism financing (AML/CTF) measures. The FATF is the inter-governmental body that develops global anti-money laundering policies and sets standards for member countries. In 2015, a FATF evaluation team assessed Canada’s AML/CTF regime against FATF’s global standards and has now released its findings.
While the Report acknowledges that the Canadian regime has a good grasp of the risks the country faces from money laundering and terrorist financing, it identifies a number of areas requiring improvement. Notably, the fact that lawyers and law firms are not subject to the federal AML/CTF regime was identified as a “significant loophole” (a Supreme Court of Canada decision severely limited the application of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to the legal profession). Real estate brokers and dealers in precious metals and stones were also singled out for attention as high risk sectors in need of “more intensive supervisory measures”.
In general, securities dealers were assessed to have “a good understanding of their AML/CFT obligations, although supervisory findings highlight that the level of understanding is weaker in more simplified structures and that internal controls are a recurring area of weakness”.
The Report also notes that certain securities dealers, particularly those not involved in cross-border activities, tend to underestimate their vulnerability to money laundering and terrorist financing. Further, FINTRAC data indicates an uneven level of compliance among non-Federally Regulated Financial Institutions (FRFIs). Some of these non-FRFIs (including securities dealers) exhibit “incomplete or not updated policies and procedures, limited scope of controls, a lack of comprehensive assessment of effectiveness, and no communication to senior management”.
The Report is currently being reviewed by industry and policy makers, and we can expect further regulatory initiatives to address the findings.