Thank you, Mr. Chair and members of the committee.
My name is Ian Russell, and I am President and CEO of the Investment Industry Association of Canada, or IIAC.
Thank you for the invitation to come before the committee today to present the views of the IIAC.
We look forward to giving our views on your five-year statutory review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
As some of you know, the IIAC is the national association representing 123 investment dealers on securities regulation and public policy. Dealers have important obligations as reporting entities under the act and its regulations, similar to the other regulated financial intermediaries in Canada. Our members follow an extensive and onerous process to verify client identity and to ensure that they do not represent unacceptable financial crime risk. They're also required to have in place real-time risk mitigation measures to prevent suspicious transactions, and due diligence processes, especially in dealing with politically exposed persons.
We keep detailed records, and we submit mandatory reports on suspicious transactions to FINTRAC. We are subject to an audit process by FINTRAC and other regulatory authorities in Canada. We reviewed the Department of Finance discussion paper, and our perspective is really framed through that consultation paper that proposes measures both to improve the effectiveness of the legislation and also to facilitate the obligations and responsibilities of reporting entities.
First off, we applaud the consensus reached by the federal, provincial, and territorial finance ministers last December to improve the transparency and consistency of beneficial ownership information and access to the information.
Although corporate information reporting requirements are in place at both the federal and provincial levels, there are differences that pertain to the definition, collection, and disclosure of the information and the access to the information. In our view, governments really need to move expeditiously to harmonize beneficial ownership standards across Canada and in both the federal and provincial corporate law statutes.
They really need to look carefully at mechanisms to improve access to this information. We believe that the committee could play a significant role in encouraging federal and provincial governments to give a high priority to creating a central registry that can contain current and accurate information related to beneficial ownership. As was cited here in earlier testimony, the example that stands in front of us is the U.K.'s people with significant control register.
I think that a central registry, from your perspective, would achieve a more efficient and accurate transactional surveillance process for the marketplace. Finance ministers have committed to changes that will make information on beneficial ownership available to law enforcement, tax, and other authorities. We think that it should be extended, as it is in the U.K.'s model, to be accessible to, certainly, all reporting entities, and possibly to the general public, to meet public policy objectives. A central registry, as I said, would be of enormous benefit to securities dealers, who find it a very complicated and time-consuming process to work through the complexity of business structures, particularly private corporations.
Our other recommendations relate to facilitating the obligations of securities dealers and other reporting entities to improve the efficiency of the reporting exercise and also to relieve the compliance burden.
First, the legislation should be flexible to accommodate new technologies, such as digital identification in the verification process, and it should be sufficiently flexible to enable timely adaptation of a range of innovative technology. Facial recognition is a case in point.
Second, FINTRAC should engage in ongoing dialogue with securities dealers and other reporting entities to ensure greater transparency on FINTRAC requirements. For example, when reporting entities such as securities dealers send suspicious transaction reports to FINTRAC, we believe that FINTRAC should provide timely feedback to reporting entities, indicating which STRs happen to be suspicious, or not. In our view, that kind of an interactive process would certainly be helpful to the reporting entities that are trying to track these transactional flows by particular counterparties.
Third, interactive communication between FINTRAC and the other regulators is important in our view. Regulators, such as the self-regulatory bodies that securities dealers are responsible to, also have money-laundering regulations. It certainly would be helpful if we could have congruence or a process that could ensure that there isn't a duplication in the rule-making process. That would come about by close coordination between FINTRAC and the regulators.
Finally, the other recommendation is with regard to subsection 62(2) of the act. It provides certain exemptions from the record-keeping and verification requirements for reporting entities. What I have in mind here, in particular, are listed corporations and regulated financial institutions in Canada. In our view, there is scope to expand these exemptions to certain foreign-regulated entities that are subject to a comparable regulatory regime as in Canada. I'm thinking in particular of hedge funds and asset managers of all sorts in regimes such as the United Kingdom, where they are regulated under the FCA, or in the United States under the SEC. Again, the advantage of that is it would relieve the reporting entities of an identification burden that you could justify in this mutual-recognition process.
My understanding is that we have put forward this recommendation a number of times to Finance in the past. I think the push-back is creating precedents among some of these foreign jurisdictions, but, in our view, you can start with the U.S. and the U.K. You can include the G7, but certainly most of the transactional flows internationally or institutional flows are coming from the U.K. and the U.S. The other reason why it's important, aside from eliminating the compliance burden, is that these requirements can discourage these regulated financial institutions from transacting with dealers in the Canadian market in Canadian securities—and certainly, that's not in our public benefit. So we think that the protections are there from a money-laundering point of view and also from an investor protection point of view if a careful recognition process is in place.
With that, I'll close my remarks.
I'm happy to answer any questions on this subject matter, or anything else related to the act.
Thank you, Mr. Chair.
