Federal watchdog flags major compliance gaps, raising concerns over mortgage-related vulnerabilities
More than a third of small and medium-sized Canadian banks recently reviewed by the country’s financial intelligence watchdog are falling short in complying with anti-money laundering (AML) regulations.
Eighteen out of 50 small and medium-sized banks examined during the 2023-2024 fiscal year were found to have deficiencies in their AML programs, according to a report by the Financial Transactions and Reports Analysis Centre of Canada (Fintrac). In eight cases, those gaps were serious enough to threaten the “quality of their money laundering and terrorist financing risk management.”
In some instances, the report found banks had “deficiencies” in how they reported suspicious transactions, a basic requirement under federal law. Other banks showed “vulnerabilities to money laundering and terrorist financing risks,” particularly around mortgage-related transactions.
“Given Fintrac’s risk-based approach to assessing entities with higher risk profiles, it is expected to identify more deficiencies during the course of an examination in this sector,” said Fintrac spokesperson Erica Constant, who also noted that banks submit more than 90% of the suspicious transaction reports the agency receives.
Former Fintrac deputy director and AML consultant Denis Meunier said the results should raise alarms about how well small banks are protecting against financial crime.
“You need to have penalties that convince businesses that the cost of doing business is too high if they don’t comply,” Meunier said, arguing that Fintrac should be issuing more and steeper monetary penalties to banks with inadequate controls.
Despite the findings, Fintrac has issued only two monetary penalties to small or medium-sized banks since 2023. Wealth One Bank of Canada was fined $676,500 for violations, including failing to report suspicious transactions, and Exchange Bank of Canada was hit with a $2.46 million penalty for failing to submit suspicious transaction reports.
In one case, Fintrac cited a scenario where a high-risk client moved millions of dollars, “more than 10 times the expected weekly volume,” without proper reporting.
The Canadian Bankers Association said it “cannot speak to the practices or regulatory interactions of our individual members,” but spokesperson Maggie Cheung affirmed, “the banking sector takes the fight against money laundering and terrorist financing very seriously,” adding that Canadian banks have invested significant resources in compliance programs.
Fintrac’s report did not identify specific banks but mentioned one that was fined for “critical gaps identified in its anti-money laundering and terrorist financing program.” The agency said after “monitoring meetings” with 50 banks, it issued action plans to 10 that needed to address compliance gaps, and notified another eight of upcoming examinations.
The sector has faced mounting scrutiny since Toronto-Dominion Bank (TD) was ordered to pay over US$3 billion by US regulators for failing to stop money laundering in its US branches. TD also agreed to a nearly $9.2 million penalty from Fintrac in 2024. The federal government has since promised tougher penalties for AML violations, but these changes haven’t yet taken effect
Fintrac emphasizes that “the presence of deficiencies does not necessarily indicate intentional wrongdoing. Instead, it often reflects areas where institutions need to improve their processes, controls or understanding of regulatory obligations.”
Still, Meunier says the number of banks falling short is unacceptable.
“They should be AMPed, period,” he said.
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