Evidence of meeting #141 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was unions.
A video is available from Parliament.
5:05 p.m.
Chief Anti-Money Laundering Officer, AML Enterprise, BMO Financial Group, Canadian Bankers Association
Thank you, Sandy.
The emergence of fintech has brought forth a whole new realm of opportunities to use technology to enhance identification. I don't think anyone at this table is advocating for a weaker approach to KYC, but we would—
5:05 p.m.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Sorry to interrupt, but as part of your answer, could you also talk about how block chains could enhance your ability to identify who your clients were?
5:05 p.m.
Chief Anti-Money Laundering Officer, AML Enterprise, BMO Financial Group, Canadian Bankers Association
Absolutely.
Blockchain presents a unique opportunity for client identification in a secure and encrypted way, using the concepts of digital keys and digital key management. That's an area that we need to contemplate as we look forward to revamping regulations. How will banks use digital key and digital key management in the new regime, and the rights of protecting that information under PCMLTFA and things of that sort?
I'll tie this in quickly with bearer shares, if I may. In the blockchain world, this is a bearer share. If I give you this, it has a private key and a public key, and you own what is in that crypto-wallet or in the blockchain. That is not a mechanism by which the conventional means that we use to track and report on money laundering will work in the future, so there's an opportunity for exploration and new ways of innovation in how we think about AML in a future state in this space.
I welcome ongoing discussions with the Department of Finance, the CBA, and the government on this very topic, with FINTRAC included. The advancements we're seeing in technology create opportunities, but they also create new risks, and we need to be in a position to address that.
5:10 p.m.
Liberal
The Chair Liberal Wayne Easter
Sorry, Greg. You're well over time; you may get another chance.
Mr. Albas, you're next.
March 28th, 2018 / 5:10 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Thank you, Mr. Chair, as well as to all our witnesses for all the work you do and for coming to share your expertise with us today so we can help with this review.
I'd like to talk about FINTRAC in general. I have spoken with a number of credit unions that say that they are spending more and more money to comply with the federal side. There are many touchpoints, and FINTRAC is one of them.
This can be open to the group. FINTRAC collects a lot of data, and it does so on a lot of transactions. Right now, legislatively, it can only utilize that data on a one-to-one basis if it's regarding money laundering or terrorism financing. Then it works with the proper authority to tackle that from there. They cannot share information, by law, because they don't want to compromise privacy. Nevertheless, we know that in places under provincial jurisdiction, such as private mortgages, etc., there are a lot of cash sales that are not picked up by CMHC or by OSFI.
My proposal, as part of some sort of renewal of FINTRAC through this review, would be to see if we can take what is already very costly to credit unions and other reporting agents under this and allow FINTRAC to aggregate so that no personal, private information is compromised, allowing policy-makers to have a better understanding of the markets. For example, real estate professionals do tell me that FINTRAC takes quite a bit of their time. Again, I haven't seen the paperwork, so I can't judge that, but I bet you that if they had a return showing a little bit more information on cash sales in their area or which provinces are the flashpoints for troubles with real estate, they would probably value that. Is this something that you think would be a welcome addition as far as making that information publicly available?
5:10 p.m.
Assistant Vice-President, Financial Sector Policy, Canadian Credit Union Association
Maybe I'll start off.
It sounds like an interesting proposal. We'd have to give it some thought, but I don't know. Sabrina's more in this area than I am, so maybe she has some thoughts.
5:10 p.m.
Senior Manager, Regulatory Policy, Canadian Credit Union Association
FINTRAC has for some time created their typologies and trends reports. I can't say that I've seen one recently, but those reports spoke very much to what you're suggesting. I think there's always room to do it to a greater extent and to share it more extensively. That's definitely valuable in helping alert reporting entities to what might or might not be compromising to them. This really ties into what our CBA friends have also said, in that there is capacity to use technology to a greater extent to try to identify some of these issues.
5:10 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Would anyone else like to speak to that? Anyone from life insurance?
5:10 p.m.
Assistant Vice-President, Compliance, Manulife, Canadian Life and Health Insurance Association
Sure. I think we would support any initiative that would get greater value from the information that we're providing to FINTRAC.
5:10 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Okay.
In regard to administrative burden...and again, I don't want to say that the $75 per member is all FINTRAC, because that's not fair, and that's not true. It's an accumulation of the common reporting standard and know your client protocols, etc. There's a lot that goes into that, to be clear, but when I asked FINTRAC, when they came to this committee on this review, if they track—and Mr. Kmiec went on this vein, as well—they said that they are very effective at what they do, but they do not track the administrative compliance cost. You can't manage what you can't measure.
Do you think that it would be helpful to know, when they are doing their jobs, that there there was a number that they had to be accountable for, and if it went up over a period of time then public officials like us could better evaluate whether the system is working as is intended?
5:10 p.m.
Assistant Vice-President, Financial Sector Policy, Canadian Credit Union Association
I think I'll start off, and if my colleague has anything to add, she can.
I think, parroting a little bit the comment that was made earlier, we'd be supportive of any measure that increases awareness about that compliance cost and puts it a little higher up on the agenda. I think the government is striving to achieve a balance between having a robust framework and minimizing costs. I just think we think sometimes that balance isn't always struck quite right. I'd be supportive of anything like what you're proposing that would help with that.
5:15 p.m.
Counsel, Canadian Life and Health Insurance Association
Mr. Albas, I couldn't agree more. I mean, even small changes in some of the definitions.... I'll give an example. I know you're using the Department of Finance February paper as a foundational document. One of the proposals is to broaden or increase the scope in terms of the definition of what would constitute a head of an international organization, these sorts of changes.
Obviously, the system needs to adapt to perceived threats and money launderers. They change and they amend their ways in response to these things, but in terms of changing the definition of a head of an international organization, these are small changes, but they can result in multi-million dollar costs, certainly to members of our association.
Forms need to be changed, and these changes are made electronically. Training has to be provided. There are outside vendors who need to be engaged, and many insurers often use the same vendors, so when these changes need to be made, and there's a deadline by which that has to happen, there's often competition for those scarce resources, and as you can imagine, what happens is the cost of those resources go up.
Let me just say there are a lot of excellent proposals and suggestions in that paper. We've mentioned a few, but this is one we're quite concerned about.
5:15 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you, all. We have bells ringing, 30-minute bells. Do we have agreement to continue for the foreseeable future?
5:15 p.m.
Conservative
Tom Kmiec Conservative Calgary Shepard, AB
Mr. Chair, maybe just one thing, and forgive me for this, but at the beginning of the meeting, I didn't speak to a Governor in Council appointment bill that was provided to us by the clerk, and I want to exercise the committee's right to call forth witnesses, because it is germane to the debate we're having, but I can do it at the end.
5:15 p.m.
Liberal
The Chair Liberal Wayne Easter
We'll take it on notice, and we'll have a subcommittee meeting at some point in time to rework the schedule.
Mr. Sorbara, we'll go to four-minute rounds in order to get to all that has to be done.
5:15 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you, Mr. Chair.
Welcome, everyone, to the committee.
Mr. André Lareau, you mentioned bearer shares in your testimony. Is it correct that you mentioned bearer shares?
5:15 p.m.
Associate Professor, Faculty of Law, Université Laval, As an Individual
Yes.
5:15 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
In the agreement that the honourable Minister of Finance reached with his provincial counterparts, point 2:
Ministers agreed in principle to pursue amendments to federal, provincial and territorial corporate statutes to eliminate the use of bearer shares and bearer share warrants or options and to replace existing ones with registered instruments.
Was this what you were advocating for in your testimony?
5:15 p.m.
Associate Professor, Faculty of Law, Université Laval, As an Individual
That's what the minister indicated, but an analysis of the bill suggests the exact opposite. According to the legislation, existing bearer shares will continue to be valid unless the holder of the certificate requests that it be converted to a registered instrument.
5:15 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I'll just stop you, because it ends off and it says, “and to replace existing ones with registered instruments”.
5:15 p.m.
Associate Professor, Faculty of Law, Université Laval, As an Individual
Yes, that is what the minister stated, but that is not consistent with what's in the bill. At least, I couldn't find anywhere in the bill where that was indicated, despite reading all the provisions.
5:15 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you for indicating that.
Over to the CBA, on the testimony there is what's called a risk-based approach, and when I think about that, I think it's almost like going through CATSA at the airport, where some people have a NEXUS card, and some people are in priority where they just kind of whiz through and they've already been pre-cleared. The act we passed is called the Preclearance Act.
Is that fundamentally what you are advocating for on strengthening Canada's AML-ATF regime?
5:15 p.m.
Assistant General Counsel, Canadian Bankers Association
The banks have put a lot of resources into this, and we're not suggesting that we don't want to keep that level of resource. We just want to get the most output for that resource, and we feel the best way to do that is to focus on the highest risk customers or typologies.
Sometimes in the regime, there's a lot of noise that doesn't necessarily cause compliance burden, but it doesn't necessarily bring you a greater output. An example would be ongoing monitoring of an account. You're supposed to have ongoing monitoring of low-risk accounts. You have a retired person, but you're still supposed to make sure that they're retired or they're still living at the same place, those types of things. We want to focus on the risk.
5:20 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Okay. I have a quick follow-up, because I do want to move to the credit unions.
On PIPEDA, obviously there are privacy concerns that we need to deal with if we want to follow the House of Commons ethics committee recommendation to allow further information sharing. Sometimes I'm hesitant to advocate for more information sharing where the safeguards are not in place. I wanted to make that comment.
Going to the credit unions, we had FATCA, I think it was called, introduced a while ago. The burden on the compliance for credit unions, especially some of the smaller ones, is a lot. How are your members handling the compliance costs in terms of what we require, and do they have the wherewithal to potentially withstand more strengthening of compliance measures?
5:20 p.m.
Assistant Vice-President, Financial Sector Policy, Canadian Credit Union Association
A typical response to increased regulatory demands in the credit union system is to.... As I mentioned earlier in a response to another question, we get the central entities, these entities that are back-office entities that credit unions have created, historically, precisely to deal with these shared demands on the system. If the issue is not being dealt with by a central entity, they'd be creating a credit union service organization so they'd collectively get together and share the costs out. That's one way they can attenuate some of the costs.
Sabrina, would you like to add anything?