Adoption of big regulatory changes must avoid unintentional harm

Federal authorities should step up co-operation with investment industry regulators, enhance disclosure to the industry and allow greater reliance on facial recognition technology.

That’s the message from the Investment Industry Association of Canada (IIAC) in a letter to the federal Department of Finance Canada as part of a parliamentary review of the anti-money laundering (AML) legislation.

In the letter, the IIAC calls for several reforms that would either enhance the effort to combat financial crime, or help reduce the burden of complying with AML rules. For example, the group recommends that federal authorities provide industry regulators with information on micro-capitalization companies that may be being used in fraudulent schemes.

“While [the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)] collects and analyzes vast amounts of data and shares intelligence with law enforcement agencies when that information might be relevant to a money laundering or terrorist financing offence, the IIAC believes that there are further opportunities for information sharing to help reduce financial crime,” the letter says. “For example, trading practices in penny stocks/micro-cap could be improved to identify issuers being manipulated and used as vehicles for fraud.”

In the U.S., various regulators work co-operatively on this front, the IIAC’s letter notes: “The IIAC believes that there needs to be a co-ordinated effort among regulators and continued communication among [the Canadian Depository for Securities, the Investment Industry Regulatory Organization of Canada, the Ontario Securities Commission,] FINTRAC and others to meet regularly and discuss red flags, trend analysis and efforts to identify manipulative and deceptive practices.”

In addition, the IIAC suggests that AML legislation and FINTRAC rules should be revised to allow greater reliance on facial recognition technology, giving it similar status to meeting clients face-to-face as an identification method.

“The accuracy of this technology is far superior to some of the client identification methods that exist today,” the IIAC’s letter says, recommending that, “The legislation and FINTRAC guidance should be written to embrace technology and catch up with current technological advancements that are already in place within our country and globally around the world.”

Some of the IIAC’s other recommendations include enhancing communication between FINTRAC and other regulators in order to reduce duplication and overlap. It also recommends giving financial services institutions more feedback on the results of suspicious transaction reports; greater disclosure to firms of individuals that have been identified as security threats or criminals; and that FINTRAC publish written decisions of violations of the AML laws on its website.

“This helps to inform all reporting entities of the issue and improve their own procedures and practices to ensure they avoid similar issues within their respective organizations,” the letter says.

The IIAC’s letter adds that the group supports a recommendation from the Canadian Bankers Association (CBA) for the creation of a central register that contains current and accurate information about beneficial ownership.

“This measure will not only reduce the burden on our members but improve the accuracy and transparency with respect to beneficial ownership information,” the IIAC’s letter says.

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