- Type of Publication: Guideline Impact Analysis Statement
- Date: December 2008
- No: B-8
- Audiences: Banks / FBB / T&L / Life
OSFI’s Guideline B-8, Deterring and Detecting Money Laundering,
was originally released in 1996 and was revised in 2003 and again
in 2004 to reflect changes to Canadian legislation, notably amendments
to the Proceeds of Crime (Money Laundering) and Terrorist Financing
Act (PCMLTFA), and also to reflect the introduction of OSFI’s
anti-money laundering assessment program.
In December 2006, the PCMLTFA was substantially revised (through
Bill C-25) with the purpose of aligning it more closely to international
anti-money laundering and anti-terrorist financing standards as
articulated by the Financial Action Task Force (FATF), of which
Canada is a founding member. Legislative and regulatory requirements
came into effect on various dates. For federally regulated financial
institutions (FRFIs), the most significant of these were changes
to the PCMLTFA and consequential amendments to the Proceeds
of Crime (Money Laundering) and Terrorist Financing Regulations
(PCMLTFR), which took effect on June 23, 2008.
Amongst other things, the amended legislation and regulations
require FRFIs (in addition to taking prescribed measures to identify
clients and keep records) to implement an anti-money laundering
and anti-terrorist financing (AML/ATF) compliance program, including
the development and application of policies and procedures to assess,
in the course of their activities, the risk of a money laundering
offence or a terrorist activity financing office; and, if the FRFI
considers that this risk is high, take prescribed special measures
for identifying clients, keeping records, and monitoring financial
transactions in respect of the activities that pose the high risk. A
particularly significant provision is the requirement to apply risk
based measures (termed “reasonable measures” in the PCMLTFA and
PCMLTFR) to areas identified as higher risk.
This Guideline highlights the need for FRFIs (except property
and casualty insurance companies, cooperative credit associations
and fraternal benefit associations) to develop and operate AML/ATF
programs that address the risk of ML and TF as well as ensure regulatory
compliance. The measures introduced by Bill C-25, together with
the requirement to establish AML/ATF programs, will further reduce
the susceptibility of FRFIs to being used by individuals or organizations
to launder funds, thereby reducing their exposure to damage to their
reputation, a key asset in the financial services industry.
In addition to issuing the Guideline, OSFI will continue assessing
the AML/ATF programs operated by FRFIs.
II. Problem Identification
Many of OSFI’s AML/ATF assessment findings to date relate to matters
that have been addressed by the current Guideline. However, the
passage of Bill C-25 and its associated regulations, the passage
of time, and a longer record of experience, has identified the need
to substantially re-write the Guideline. Specifically:
- Much of the content of the 2004 Guideline has now been codified
into compliance requirements with the passage of Bill C-25.
- The introduction of a risk based approach to some control measures
has amplified the need for OSFI to identify effective measures
and communicate these to FRFIs
- In March 2008, the FATF published its Mutual Evaluation Report
(MER) on Canada.
This evaluation identified the need for OSFI to significantly
expand its AML/ATF guidance and apply clearer expectations of the
risk management controls that FRFIs need to implement.
The objective of revising Guideline B-8 is to assist FRFIs to
develop and implement effective AML/ATF risk management controls
to manage their exposure to ML and TF risk, as part of their AML/ATF
The requirements to apply risk based measures to identified areas
of higher risk allow FRFIs more flexibility to determine for themselves
how to achieve the prescribed outcomes provided that the measures
chosen are “reasonable”. To be reasonable, the measures used must
achieve the prescribed outcome.
The revised Guideline does not create any new regulatory requirements.
Rather, it identifies measures that OSFI has found to be reasonable
when applied effectively – i.e. when they achieve the prescribed
Effective controls over ML and TF risk, and related regulatory
and reputation risk, are essential.
In order to achieve effective controls, FRFIs will adopt different
approaches to their AML/ATF programs that take into account the
nature, scope, complexity and risk profile of their institution.
FRFIs are expected to take into account the contents of this Guideline
when implementing their AML/ATF programs. OSFI’s AML/ATF assessment
program, which aims to assist OSFI in evaluating the effectiveness
of controls, takes the foregoing into consideration in the assessment
of individual institutions.
Consequential objectives of the revised Guideline include; discussing
the relationship between the Guideline and OSFI Guideline E-17 Background
Checks on Directors and Senior Management of FREs, as well as guidance
published by Financial Transactions and Reports Analysis Centre
of Canada (FINTRAC); indicating that guidance on designated name
searching and sanctions will be the subject of a separate Guideline
to be issued by OSFI in 2009; and that FINTRAC retains responsibility
for ensuring compliance with Part 1 of the PCMLTFA and PCMLTFR,
including new powers to apply Administrative Monetary Penalties
for violation of specific provisions of the PCMLTFA and PCMLTFR
effective in December 2008.
IV. Identification and Assessment of Options
Option 1 - Revise Guideline B-8 to address the Objectives in this
Under this option, Guideline B-8 is rewritten to provide detailed
guidance on the assessment of inherent ML and TF risks and control
policies and procedures that address these risks. The Guideline
would also be expanded to more clearly indicate that FRFIs are expected
to develop and implement AML/ATF programs in line with regulatory
OSFI will not incur significant costs related to revising Guideline
FRFIs should not incur additional costs in implementing revised
Guideline B-8, as the Guideline underpins regulatory requirements
that have already come into effect and for which FRFIs have already
incurred compliance costs. Revising Guideline B-8 enables FRFIs
to apply controls which they know in advance should be acceptable
to OSFI, which, in turn, will assist them to reduce unnecessary
costs if the measures are effective.
This option also demonstrates that OSFI is ensuring its guidance
remains relevant and on a par with international standards. In addition,
it would result in a more “level playing field”, as all FRFIs would
simultaneously be made aware of OSFI’s expectations of how they
should deal with risk management issues with respect to their AML/ATF
Option 2 - Status Quo - Do not revise Guideline B-8 or take other
steps to achieve the objectives outlined in this Analysis Statement.
This option would present no incremental financial costs to OSFI
and could be seen as limiting regulatory burden.
However, FRFIs that do not appropriately address AML/ATF risk
management and compliance issues may be exposed to enhanced supervisory
measures as well as legal or regulatory sanctions or penalties,
and, hence, increased reputational risks. OSFI may also be exposed
to reputational risk if it were determined that a lack of effective
guidance contributed to FRFIs potentially facilitating inappropriate
or illegal activities. In addition, OSFI could be criticized for
not making improvements to its Guideline as suggested by the FATF.
Option 3 - Leave Guideline B-8 unchanged but communicate additional
information and expectations to individual FRFIs when AML/ATF assessments
Under this option, the Guideline would remain unchanged, but OSFI
would communicate the additional information and expectations to
FRFIs individually that would otherwise be included in a revised
For OSFI, this would be inefficient. Further, OSFI could be criticised
for not communicating expectations to all FRFIs, resulting in uneven
implementation across the sector if FRFIs do not appropriately address
AML/ATF risk management and compliance issues in similar time frames
or apply them inconsistently. The biggest drawback of this option
is that FRFIs would not be subject to consistent and transparent
The most appropriate method of disseminating revised and upgraded
expectations regarding AML/ATF programs is through the proposed
re-write of the current Guideline (i.e. Option 1).
OSFI regularly communicates with FRFIs individually and collectively
on AML/ATF issues. This outreach includes: regular information sessions
hosted by OSFI on AML/ATF; participation in various industry conferences;
and in consultations with industry associations on regulatory changes.
In these fora, OSFI has indicated that it would be revising Guideline
B-8 for the reasons noted above. In general, feedback has been positive
because FRFIs recognize their inherent ML/TF risks and the need
to have strong risk management controls in place. They therefore
welcome guidance that assists them in strengthening controls and
complying with legal requirements.
The consultation period for discussing the revised Guideline B-8
with FRFIs and industry associations has been shorter than that
normally set for OSFI consultations on guidelines generally. The
Department of Finance requested OSFI to use its best efforts to
introduce a revised Guideline B-8 that would be in effect by mid-December,
2008. Under the FATF evaluation procedures, Canada’s response to
the FATF Mutual Evaluation Report (MER) on Canada will be considered
by the FATF in February 2009 and will include measures Canada has
taken to respond to AML/ATF deficiencies noted in the MER. These
measures will be evaluated by the FATF and if deemed adequate, a
less frequent follow up process by Canada may be allowed, thus signalling
improvements to the Canadian AML/ATF regime. OSFI’s Guideline B-8
was referred to extensively in the MER, and although the FATF did
not make any formal recommendations for improvements to the Guideline,
the Department of Finance believes that an upgraded and revised
Guideline B-8 is a key component of Canada’s response to the MER.
Accordingly, OSFI requested industry associations and FRFIs to shorten
the time allocated for the consideration of comments. OSFI is appreciative
of industry associations for their efforts in providing commentary
to OSFI within the requested timelines.
A confidential pre-consultation draft was sent to industry associations
on October 10 and 14, 2008, with comments requested no later than
On November 7, 2008, OSFI issued for public comment a draft revised
version of the Guideline, with comments to be provided no later
than December 10, 2008.
Detailed comments on the November 7 consultation draft were received
from: the Canadian Bankers Association and the Canadian Life and
Health Insurance Association. OSFI also met with representatives
of these two Associations to discuss their comments in more detail.
In addition, comments were received from a group of credit card
banks, other FRFIs and some individuals. All comments received have
been studied in detail and OSFI has made several changes, reflected
in the final version of the Guideline, to address many of the key
issues raised. All commentators will be provided with appropriate
feedback. OSFI is grateful to all commentators for providing helpful
comments within the timelines provided.