On October 21, 2015, the Joint Committee of the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority ( together , the European Supervisory Authorities “ESAs”) published two consultation papers on guidelines required under Article 48(10) of the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4).

The committee’s consultation paper on the risk-based supervision guidelines (JC 2015 060) focuses on the characteristics of a risk-based approach to anti-money laundering (AML) and counter financing of terrorism (CFT) supervision and the steps supervisors should take when conducting supervision on a risk-sensitive basis. The aim is to create both a common understanding of risk-based supervision (RBS) and to establish consistent and effective supervisory practices across the EU, complaint with the Financial Action Task Force’s standards. RBS is characterized as an ongoing and cyclical process that includes four steps:

  • identification of the money laundering (ML) and terrorist financing (TF) risk factors,
  • risk assessment (whereby competent authorities use this information to obtain a holistic view of the ML/TF risk associated with each credit or financial institution),
  • allocation of AML/CFT supervisory resource based on the risk assessment; and
  • monitoring to ensure the risk assessment and associated allocation of supervisory resource remains up to date and appropriate.

The guidelines make recommendations for each of these steps and build on a preliminary report published by the ESAs in October 2013.

The ESAs are required to issue the guidelines on the risk factors under Article 17 and 18(4) of MLD4. The committee’s consultation paper on the guidelines (JC 2015 061) covers simplified and enhanced customer due diligence and the factors which credit and financial institutions should consider when assessing the AML/CFT risk associated with individual business relationships and occasional transactions. The aim is to promote the development of a common understanding by firms and competent authorities across the EU of what the risk-based approach to AML/CFT entails and how it should be applied.

  • Title II of the guidelines is generic and applies to all credit and financial institutions. It is designed to equip firms with the tools they need to make informed, risk-based decisions when identifying, assessing and managing AML/CFT risk associated with individual business relationships or occasional transactions.
  • Title III of the guidelines is sector specific. It sets out risk factors that are of particular importance in certain sectors, including retail banks, wealth management and life insurance undertakings, and provides guidance on the risk-sensitive application of customer due diligence measures by firms in those sectors. The guidelines are likely to be finalized in spring 2016 and, once adopted, the ESAs will keep them under review and update them as appropriate.

Comments on both consultation papers should be received by January 22, 2016. The ESAs will hold a public hearing on the draft guidelines on December 15, 2015