On 21 October 2015, the Joint Committee of the European Supervisory Authorities (ESAs) issued two consultation papers on guidelines required under MLD4 providing input on the risk-based supervision and the risk factors guidelines.
The first consultation paper (JC 2015 060) provides an overview of the risk-based guidelines highlighting that competent authorities should follow a risk-based supervision (RBS) approach and establish consistent and effective supervisory practices across the EU. The ESAs are required to issue the guidelines to competent authorities under Article 48(10) of MLD4, which incentivises competent authorities to conduct anti-money laundering and counter-terrorist financing (AML/CTF) on a risk sensitive basis. The guidelines characterize the RBS as an on-going and cyclical process that includes four steps: the identification of money laundering and terrorist financing risk factors; the risk assessment, whereby competent authorities use such information to obtain a holistic view of the risks associated with financial institutions; the allocation of AML/CTF supervisory resource based on this risk assessment; and monitoring and review to ensure that the risk assessment stays up to date.
The guidelines make recommendations on each of these steps and aim to create a common European basis for compliance with the FATF standards, which put the risk-based approach at the centre of Europe’s AML/CTF
regime. These recommendations include ways to implement a RBS model, general provisions regarding the identification of money laundering and terrorist financing factors, and the risk assessment conducted using these factors as a basis.
The second consultation paper (JC 2015 061) focuses on simplified and enhanced customer due diligence and the factors that credit and financial institutions should consider when assessing the money laundering and terrorist financing risk associated with individual business relationships and occasional transactions. The ESAs are required to issue the guidelines under Article 17 and 18(4) of MLD4. The guidelines aim to help firms conduct adequate customer due diligence and promote a common understanding among firms and competent authorities of the risk-based approach to the AML/CTF regime. The guidelines provide generic input for all credit and financial institutions on the tools that they need in order to make informed, risk-based decisions when identifying and assessing AML/CTF risk, but they also set out risk factors that are of particular importance for specific sectors including retail banks, wealth management and life-insurance undertakings.
The ESAs held a public hearing on the draft guidelines on 15 December 2015 and they received comments up to 22 January 2016. The guidelines are expected to be finalised in spring 2016.