Thank you, Mr. Chair.
It's important given the comments Mr. Tassé made that I immediately distance myself from being a lawyer.
In addition to my role at Cassels Brock, I also lead a company called the Canadian Compliance Group. Together with our software partner, Resolver Inc., we provide compliance risk management software to just over 20 Canadian financial institutions. About 15 of those are small-to-mid-sized Canadian banks.
In 2012, I, along with Warren Law from ICICI Bank, formed an ad hoc group of compliance officers of the small and medium bank community in Canada. We have met consistently since 2012 as a forum for compliance officers to share information and issues about compliance with one another. As that has evolved over time, because of my roles working with the small bank community, people have now come to associate me with having some insight and knowledge about the issues and concerns of that community, so it's under that side of what I do that I'm here today.
In terms of the small bank community, if I were to say anything about what their concerns and issues are, I would first say that I'm a little distinct from the rest of the witnesses here today, because I represent a group that is actually a currently regulated group as opposed to an unregulated group. For us it's an issue of balancing. Since the late 1990s, successive governments have had a policy of supporting new entrants into the banking industry, and we find that with the advancements particularly in technology, what's been labelled as FINTRAC of late, the small bank community is actually starting to develop, be strong, and be successful. They're finding new and innovative ways to deliver their services to Canadians, and now we have in excess of 20 or 25 small Canadian banks that are serving the country in addition to the large six that we all know so well.
When it comes to AML or to any regulatory matters, the issue is balancing that need to support new entrants, and new competition into the industry without unduly stifling that competition through excessive regulation.
The group that I work with was surveyed by OSFI a couple of years ago. OSFI asked the group two questions: if you look at the regulation that applies to your institution, please tell us about both those regulations that create the highest burden for your organization, and those regulations that provide you the most value. By value, I'll give you an example. While complying with their current capital requirements is a large burden for a small bank, the banks themselves would acknowledge that it creates a huge benefit for them as well, because it really gets them focused on strong risk management practices, ensuring that they have sufficient capital to support their business models, so there's a real benefit that comes with that burden.
The single area that the banks identified as having the largest mismatch was anti-money laundering compliance. They view it as having the highest burden of any regulatory requirements imposed on the sector, and providing the least value to the institutions themselves. That is not to say that the institutions don't recognize the greater value of anti-money laundering compliance, and doing their bit to assist that good cause, but in terms of balancing the two priorities, balancing the priority of wanting to encourage the sector to ensure that the sector can be successful, we have to understand what the burden is doing in terms of those competing objectives.
If there were anything that the industry might suggest to you it is to have more principles-based regulations, which would allow the institutions to look at the objectives of the regulations and how they can best meet those objectives without unduly shackling their business with expense.
The only concern the industry would also share is that the regulators have to meet that burden as well, so any principles-based regulation requires sophisticated supervisors who can understand and accept that the small institutions are different from the large institutions. I'm sure you will have heard the expression “one size fits all”. The regulators cut their teeth, if you will, learning what the large institutions do with the vast resources those institutions can put against the issue, and they then try to bring that learning and apply it exactly in the same way to a small institution, which would have a very different risk profile. If we're going to move to principles-based regulation, it becomes very important that we also ensure that the regulators are up to the task.
Those are my comments. As with everyone else on the panel, I'm pleased to take your questions.