Warning that money laundering and terrorist financing activities continue to be serious international problems, the Office of the Superintendent of Financial Institutions has issued a new guideline to help financial institutions avoid being at risk.

OSFI said Monday that financial institutions, in particular, are at risk of being used by criminal organizations to launder money and by terrorist groups to facilitate the financing of their activities. To help fight these problems, OSFI has issued a new guideline intended to identify some of the steps that financial institutions should take.

“Effective policies and procedures are essential to reducing the risk that facilitating [money laundering and terrorist financing activities] poses to financial institutions’ reputations and operations,” it says. “Both management and the boards of directors of [financial institutions] are responsible for the development of specific policies and procedures for deterring and detecting MLTFA as well as for ensuring that [financial institutions] adhere to those policies and procedures. OSFI also expects that institutions will be able to demonstrate, on request, that they have developed and implemented policies and procedures consistent with this guideline, and that staff are applying them as intended.”

OSFI warns that firms that fail to implement policies and procedures to deter and detect money laundering can have a negative impact on their reputation and ability to carry on business. Firms that fail to implement adequate measures are exposed to potentially serious regulatory intervention initiatives, both domestically and internationally, it warns.

The regulator says that firms must look beyond deposit accounts for risks to other financial products, such as loans, mortgages and other credit products. For life insurers, attention should be paid to products and services that permit a customer to make substantial funds withdrawals and/or large single-premium payments, it says. Other risks include properly identifying customers; relying on other firms, such as outsourcing record keeping or other functions; and, dealing in offshore jurisdictions.

OSFI intends to work closely with the Financial Transactions and Reports Analysis Centre of Canada concerning the policies and procedures that institutions have in place for complying with legislation in this area. It notes that recently adopted provisions give FINTRAC and OSFI responsibility for dealing with issues related to the financing of terrorist activities.

FINTRAC’s objectives now include the detection, prevention and deterrence of the financing of terrorist activities, while OSFI has assumed the role of a central reporting point for the aggregate reporting requirements outlined in the Criminal Code.