Thank you, Mr. Chairman. On behalf of the association, I'd like to thank the committee for the opportunity to comment on Bill C-25. The Investment Dealers Association is the national self-regulatory organization for full-service investment dealers. As part of our function we have commented extensively on Canadian money laundering law and regulations. We also audit and supervise our members in respect of their compliance with the current regulations. We have an information-sharing agreement with FINTRAC, and we share information with them on the results of those audits.
I also represent the association on the International Council of Securities Associations working group on anti-money-laundering procedures. As part of that, we have been involved in a project by FATF called the electronic advisory group on the risk-based method. It started with a meeting in Brussels last year to examine the application of risk-based approaches in the anti-money-laundering regimes.
We support the legislation. We believe that all of the issues it addresses are important and that it will significantly enhance the anti-money-laundering regime in Canada. I'll speak only about our reservations on a couple of issues. These are broader than the legislation itself, and they reflect our long-standing concern with some of the approaches in the current regulations.
I would like to focus first on proposed subsection 9.6(2). This is the beginning of a risk-based approach to anti-money-laundering provisions. Unfortunately, there is some difficulty with it. Proposed subsection 9.6(3) suggests that financial institutions should assess the risk of specific clients. In the event that they find these clients to be high risk, the institutions are required to take certain measures in dealing with them.
A risk-based approach should in fact work up and down the line. A full risk-based approach, which is what the FATF group is working at delineating, suggests not only that additional measures should be directed at high-risk customers and high-risk transactions, but also, on the other side, that there should be the opportunity to use less rigorous approaches toward lower-risk transactions and clients. In our current regime, the prescriptive nature of the measures that must be taken, particularly on the due diligence front, has resulted in a significant amount of resources being devoted to low-risk transactions or customers. They are considered by many in the industry to be largely a waste of time and resources. They bring about a checklist mentality, which deters financial institutions from bringing their expertise to bear and from placing resources where they would be most properly directed, namely, at higher-risk customers and transactions.
We are concerned about the prescriptive nature of this approach, not only in the legislation itself but also, prospectively, in the regulations. They prescribe procedures or activities that are a continuation of this approach. It will not enable Canada to compete with other countries, many of which are establishing a full risk-based approach to preventing money laundering. We already encounter frequent situations in which Canadian financial institutions, particularly those dealing with institutional customers and foreign dealers, are at a considerable competitive disadvantage. These institutions are required to undertake procedures that are not required in other countries and that in fact prevent them from doing business, simply because the customers in these countries consider procedures of this kind to be unnecessary and frequently intrusive. For example, consider the part of the bill dealing with PEP, politically exposed persons, proposed subsection 9.3(3). It outlines a number of positions that would be required to be approved in dealing with these kinds of clients.
By “senior management” of the financial institution, it's unclear exactly how senior that might be, but for example, if a retired or even a currently functioning family court judge in Buffalo decided they wanted to open an account at a Canadian bank because they have a cottage there and want to pay their utility bills, they would be forced, under these regulations, to meet whatever these prescribed account opening and also monitoring provisions might be, including the specific requirement to have the account approved by some senior management at the bank. One can wonder whether a risk-based look at who the customer was and what they intended to do wouldn't suggest that this was somewhat overboard.
I'll conclude my remarks at this point and welcome any questions.