Canadian Banks Criticize Ineffective AML Rules, Highlighting Overwhelming SAR Submissions

Canada's largest banks are raising concerns over the country’s anti-money laundering (AML) regulations, calling them ineffective and overly bureaucratic.

According to the Canadian Bankers Association (CBA), there has been a significant increase in the number of Suspicious Activity Reports (SARs) submitted to regulators, but this has not resulted in more money laundering convictions.

In a submission to a finance committee in Canada’s parliament, the CBA highlighted the inefficiency of the current AML regime. "Banks and other firms that report to the country’s FINTRAC regulator submit 12.5 times more reports than those in the U.S.," the association stated. Even more striking, Canadian banks submit "96 times more reports than those in the UK."

Despite this, the CBA argued that FINTRAC, Canada’s financial intelligence unit, generates "a disproportionately low number of intelligence reports to law enforcement." This imbalance, the group suggested, is contributing to a flawed system that prioritizes quantity over quality. "Canada’s current approach to policing money laundering is leading to high-volume, low-value reporting," they added.

The CBA also noted a disturbing trend in Canada’s fight against money laundering. "There has been a decline of (money laundering) convictions throughout 2010-2020," the group said, further emphasizing the inefficacy of the AML framework.

The Financial Post reported on the CBA’s concerns, particularly highlighting that TD Bank, a key member of the association, has set aside $3 billion to cover expected penalties tied to AML issues. TD’s recent AML struggles were underscored by a $28 million penalty levied after regulators found the bank had provided inaccurate information about customers to credit reporting agencies.

The rise in SAR submissions and the drop in money laundering convictions were described as “red flags” by the Financial Post, which suggested that the CBA’s call for reform could help avert reputational damage to Canadian banks, particularly in the U.S. market. The publication also warned that "the AML issues of Canadian lenders could damage the industry’s reputation in the U.S."

Summing up the CBA’s message, the association stressed that "change is needed to effectively deter money laundering in Canada and to ensure Canadian banks are not weak links in the fight against money laundering."

TD Bank, which has rapidly expanded its U.S. operations, is among the most impacted by these AML issues, with most of its problems stemming from its American arm. The CBA’s comments underscore the urgent need for a more effective and streamlined approach to AML enforcement in Canada. 

By fLEXI tEAM