OSFI, FINTRAC, and Cybersecurity: What Financial Firms Need to Know in 2025
Posted On October 30, 2025, by Megawire Marketing Team
In Canada’s financial sector, regulatory compliance and cybersecurity are no longer parallel issues—they are tightly intertwined. Banks, credit unions, and insurance providers face unprecedented scrutiny from regulators and mounting pressure from cyberthreats. In 2025, the combined efforts of the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) have reshaped how firms must approach risk management, technology infrastructure, and data protection.
This article breaks down the latest mandates, why financial firms must act, and how Canadian-owned IT solutions like Megawire’s Hosted Ownership model help institutions remain both compliant and resilient.
OSFI’s Expanded Mandate: Integrity and Security
In June 2023, OSFI’s mandate was expanded to assess whether financial institutions have adequate policies and procedures to protect themselves against threats to integrity and security, including cyberattacks and foreign interference. This goes well beyond balance sheets and solvency. OSFI now expects institutions to demonstrate that they can:
- Identify, assess, and mitigate fraud, cybercrime, and money laundering risks.
- Integrate cybersecurity practices directly into risk management and governance.
- Address deficiencies in security policies proactively—or face regulatory action.
OSFI has the authority to direct compliance measures, increase capital requirements, remove senior officers, and even restrict lines of business if institutions fall short of integrity and security standards [1].
FINTRAC’s Role: Detecting Financial Crime
FINTRAC is Canada’s financial intelligence unit, tasked with monitoring compliance under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Financial entities must report:
- Large cash transactions ($10,000+).
- Virtual currency transactions equivalent to $10,000+.
- International electronic funds transfers of $1,000+.
- Suspicious transactions of any amount.
They must also maintain robust compliance programs, verify client identities, and submit timely reports. FINTRAC uses this data to generate disclosures of suspicious activity, which often inform OSFI’s supervisory examinations [2].
OSFI and FINTRAC: A Coordinated Effort
While OSFI supervises prudential integrity and resilience, and FINTRAC oversees AML/ATF compliance, the two agencies increasingly work in tandem. For example:
- Information Sharing: FINTRAC shares financial intelligence with OSFI when reporting deficiencies suggest weaknesses in a bank’s governance or culture.
- Risk Assessments: OSFI incorporates FINTRAC’s intelligence into its own supervisory frameworks.
- Joint Accountability: Institutions that fail to meet FINTRAC’s PCMLTFA requirements can expect heightened OSFI oversight [2].
This dual-regulator approach underscores why cybersecurity, AML controls, and governance must be aligned. Weakness in one area can create systemic risk.
Cybersecurity as a Prudential Risk
OSFI now treats technology and cyber risk as “prudential risks”—as fundamental to financial stability as liquidity or capital adequacy. This shift recognises that:
- Foreign interference can undermine confidence in Canada’s financial system.
- Cyberattacks increasingly target core banking infrastructure, not just customer endpoints.
- Third-party dependencies (including cloud providers) create new vectors of risk.
For financial firms, this means cybersecurity strategies are no longer just an IT matter—they are board-level priorities that must stand up to regulatory review [1].
Compliance Burdens: Identity Verification
Under FINTRAC’s guidance, financial institutions must verify the identity of individuals and entities in multiple scenarios, including large cash or virtual currency transactions, international EFTs, or suspicious activity. Exceptions are limited and tightly defined.
This puts immense pressure on IT systems to:
- Capture, validate, and store identity data securely.
- Ensure reporting is accurate, timely, and tamper-proof.
- Scale with new digital payment methods, including virtual currency [3].
Institutions that fail to meet these standards risk administrative monetary penalties, reputational harm, and increased OSFI scrutiny.
The IT Dimension: Hidden Costs of Compliance
Beyond regulatory penalties, compliance failures have major cost implications:
- Operational disruption: System outages during audits or reporting periods can trigger cascading project delays.
- Financial penalties: AML violations can result in multimillion-dollar fines.
- Reputational harm: Loss of client trust often proves more damaging than the fines themselves.
Even global public cloud platforms can create risks. Hidden fees for monitoring, audit-ready reporting, and cross-border compliance quickly add up. A single compliance breach could cost millions in penalties, not to mention the reputational fallout.
Why Data Residency Matters
Storing data outside Canada exposes institutions to foreign laws like the U.S. CLOUD Act, which can compel U.S.-based providers to hand over data—even if it resides in Canadian servers. For Canadian banks and credit unions, this creates a conflict between domestic privacy obligations and foreign access rights.
Canadian data residency is therefore essential for:
- Ensuring compliance with PIPEDA and PCMLTFA.
- Protecting sensitive financial data from foreign jurisdiction.
- Demonstrating accountability to regulators and clients alike [1][2].
How Megawire Helps Financial Institutions
Megawire’s Hosted Ownership model addresses these compliance and cybersecurity pressures directly:
- Canadian Data Residency: All infrastructure is owned and operated on Canadian soil, governed only by Canadian law [4].
- Continuous Monitoring: Proactive 24/7 monitoring ensures suspicious activity and IT risks are identified before they escalate.
- Audit-Ready Reporting: Systems and processes are aligned with SOC 2 Type II and FINTRAC expectations, simplifying audits [4].
- Predictable IT Costs: Institutions avoid the hidden compliance fees often embedded in global cloud services [4].
- High-Touch Support: Local experts who understand OSFI/FINTRAC requirements provide direct, accountable service [4].
Key Takeaways for CFOs and IT Leaders
- Cybersecurity = Prudential Risk: Regulators now treat IT resilience as fundamental to financial soundness.
- Data Residency is Non-Negotiable: Offshore hosting exposes firms to foreign laws and compliance gaps.
- Monitoring and Reporting are Core: Automated, audit-ready systems are critical to meeting FINTRAC and OSFI demands.
- Local Partnerships Provide Advantage: Working with a Canadian-owned provider like Megawire aligns compliance, cost certainty, and security.
For financial services firms in Canada, 2025 is a turning point. OSFI and FINTRAC have raised the bar on integrity, security, and compliance. Meeting these expectations requires more than policies on paper—it requires resilient, accountable IT infrastructure.
By prioritising Canadian data residency, robust monitoring, and proactive compliance frameworks, financial firms can not only satisfy regulators but also protect client trust and strengthen long-term competitiveness.
With Megawire’s Hosted Ownership model, institutions gain a partner that understands the Canadian regulatory environment, delivers local accountability, and provides cost-predictable, compliance-ready infrastructure.
Reference Sources
- Office of the Superintendent of Financial Institutions (OSFI). Integrity, Security, and Foreign Interference.
- OSFI & FINTRAC. How OSFI and FINTRAC Work Together.
- FINTRAC. When to Verify the Identity of Persons and Entities—Financial Entities.
- Megawire. Private Cloud Solutions: Hosted Ownership Model. Internal Document.
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This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your Megawire IT advisor.
Megawire is a full-service Managed IT services provider. We primarily service all of Ontario and the rest of Canada, the US, and Australia virtually. Our team provides IT infrastructure assessments, network security audits, cloud computing solutions, and IT support for businesses of all sizes and industries.
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