The Office of the Superintendent of Financial Institutions today published an updated guideline regarding firms’ responsibility to establish policies and procedures to combat money laundering and terrorist financing.

A draft revised guideline was issued for comment in July 2004 to reflect developments that have taken place since the last revision was issued in April 2003, including: OSFI’s experience in conducting anti-money laundering and anti-terrorist financing assessments; and, the revised 40 recommendations issued by the Financial Action Task Force on Money Laundering (FATF) in June 2003.

The focus of the revised guideline continues to be the identification and mitigation of risks related to money laundering.

Recent experience has given rise to a couple of added areas of concern, including the use of introducers, and the need for OSFI to stay current with global standards.

OSFI warns that firms that use introducers (e.g. mortgage or deposit brokers, correspondent banks, lawyers, etc.) “may not always obtain the requisite customer identification and verification information … As a result, a [financial institution] could inadvertently be dealing with parties who are conducting or facilitating money laundering or financing terrorist activities, thereby exposing itself to possible criminal sanction.” Firms may also be exposed to increased risk of reputational damage and increased levels of regulatory scrutiny.

OSFI notes the latest recommendations from the FATF have increased customer due diligence standards (especially for higher risk customers such as dealers in cash, precious metals or gems, and for corporate customers and complex corporate structures where determination of beneficial ownership may be difficult). “Failure by OSFI to ensure that guidance remains up-to-date and meets international minimums could lead to the perception that the Canadian regulatory regime is not dealing with these issues effectively,” it warns.

The objective of revising the guideline is to remind all firms that: outsourcing, including the use of introducers, does not obviate them from full accountability for having customer identification and verification processes; and, higher risk customers may require additional due diligence and monitoring.