Mr. Chairman and distinguished members of the committee, thank you for your invitation to participate in this study of Bill C-25.
In the interest of time, I will jump to the bottom of page 3 of my written remarks.
The industry welcomes the committee's initiative to review the proposed amendments to Canada's anti-money laundering and anti-terrorist-financing legislation to ensure that its provisions are consistent with the goals publicly stated by the Minister of Finance in the key recommendations of the Senate banking committee report.
The Senate banking committee, in its October 2006 report, recommended, under the heading "Life Insurance Companies", that the federal government, in considering amendments to the act, employ the risk-based approach in determining the level of client identification, record keeping, and reporting requirements for all reporting entities.
The risk-based approach is reflected in clause 8 of the bill, and in our view these provisions are drafted in an appropriate manner. We are encouraged by the fact that the Minister of Finance has stated twice in his backgrounder on Bill C-25 that the legislative amendments are designed for, and I quote, "minimizing the compliance burden".
This well-stated objective is of paramount importance to all reporting entities under the act, including life insurers and life insurance agents and brokers. A risk-based approach is the appropriate way to achieve the goal of minimizing the compliance burden while also achieving the goal of detecting and preventing money laundering and terrorist financing activities.
In essence, a risk-based approach takes into account the risk profile of the regulated entity's products and transactions and ensures that resources are focused efficiently and effectively. While the life and health insurance industry feels that the risk-based approach is appropriately reflected in Bill C-25, it is noteworthy that the word "prescribed", to mean prescribed by regulation yet to come, appears 54 times in the bill. This is a strong indication that a significant number of provisions will be subject to prescriptive rules, to be set in regulation. The use of the risk-based approach in drafting the regulations pursuant to Bill C-25 is crucial. Only a genuine risk-based approach would enable insurers to concentrate on managing the real money laundering risk they face rather than on simply trying to manage regulatory or compliance risk and worrying, as a result, about the details of the regulator's rules.
To make any compliance program effective and efficient, whether it is mandated by law or otherwise, people must think risk, not box-ticking. Overly detailed regulations must be avoided in order to deliver the three key elements of the risk-based approach: proportionality, flexibility, and cost-effectiveness.
With respect to corporate governance, the existing supervisory framework applicable to life insurance companies in Canada does recognize that institutions will adopt individual approaches to the management of reputation risk. Overly detailed regulations will not only be costly to implement but would provide very little flexibility, if any, to accommodate individual company circumstances.
In conclusion, Mr. Chairman, I would like to suggest, on behalf of the industry, two minor changes of a technical nature to minimize the compliance burden and to provide a global perspective.
First, foreign subsidiaries of Canadian financial institutions should not be obliged to comply with the specific Canadian compliance requirements in a country that has adopted the standards of the Financial Action Task Force.
Second, similarly, authorized foreign insurance companies should be exempted from the extraterritorial effect of Canada's anti-money-laundering and anti-terrorist-financing legislation. As is the case for the authorized foreign banks doing business here, I am referring specifically to the new proposed sections 9.7 and 9.8 of the act contained in clause 8 of the bill. I am providing to the committee possible wording for amendments to these two areas.
The industry stands ready to provide any further input that the committee would find useful in the context of this review. Thank you.