The European Commission (“EC”) is proposing to strengthen the European Banking Authority’s (the “EBA’s”) role in the supervision and enforcement of anti-money laundering and terrorist financing (“AML”) rules. Among other things, the EC’s proposals would empower the EBA to request national supervisors to investigate suspected breaches of AML requirements and, in some circumstances, to require financial sector operators to comply with their AML obligations.
The EU has a strong legal framework for preventing and fighting money laundering and terrorist financing, currently set out in the Fourth Money Laundering Directive (“MLD4”). National competent authorities are responsible for supervising compliance with this framework. While the European Supervisory Authorities (including the EBA) (the “ESAs”) have a role to play in ensuring that the AML framework is applied consistently and effectively, for various reasons their ability to carry out that role has been limited.
Several recent cases of money laundering in European banks have given rise to concerns about weaknesses and gaps in the implementation of the legislative framework by the EU’s network of different supervisors. These concerns relate in particular to the following issues:
- delayed and insufficient supervisory actions to tackle weaknesses in financial institutions' AML risk management;
- shortcomings with respect to cooperation and information both at domestic level, between prudential and AML authorities, and between authorities in different Member States; and
- lack of common arrangements for the cooperation with third countries in relation to the AML supervision of financial institutions.
On 12 September 2018 the EC issued a communication (here) in which it outlined a number of proposed legislative and non-legislative measures to address shortcomings in the AML framework. Among other things, the EC is proposing to strengthen the EBA’s role in AML supervision. It is also encouraging the ESAs, as well as the European Central Bank (the “ECB”), to use their existing powers to enhance the current implementation of the existing framework.
A New Role for the EBA
In September 2017 the EC published a proposal revising the ESA’s founding Regulations including for the purpose of strengthening their capacity to ensure convergent and effective financial supervision. The EC has now amended that earlier proposal with the objective of reinforcing the ESA’s mandate in four ways:
Optimising the use of expertise and resources dedicated to AML related tasks
Existing AML resources and expertise will be centralised at the EBA and given a more robust structure. An EBA Standing Committee comprised of the heads of all national AML supervisory authorities, will ensure the involvement and appropriate representation of all AML supervisors for AML-related tasks, such as the drafting of technical standards, guidelines, and recommendations.
Clarifying the scope and content of AML related tasks
The EBA’s AML related tasks will be specified in its founding Regulation and it will get specific competences in the area of AML. The EBA’s competences will cover not only credit institutions, but all designated entities that fall within the scope of the ESAs’ Regulations, as well as the supervisory authorities of such entities.
Reinforcing the tools for carrying out the AML related tasks
The EBA will be charged with carrying out independent reviews, acting as a data hub, carrying out a risk assessment exercises and enforcing AML rules.
Independent reviews – the EBA will carry out periodic independent reviews on AML issues and will inform the European Parliament, the Council and the Commission when the review identifies serious shortcomings in identifying, assessing or addressing AML risks;
Data hub – the EBA will become the EU’s data hub on AML supervision and will be empowered to collect all necessary information and data pertaining to AML issues, including confidential data;
Risk assessment – the EBA will regularly carry out risk assessment exercise to test strategies and resources in the context of the most important emerging AML risks; and
Enforcement – the EBA’s capacity to enforce AML rules will be strengthened and it will be able to request national supervisors to investigate alleged AML breaches. Moreover, where the EBA takes decisions under the existing procedures on breaches of law or binding mediation and a national authority does not comply with those decisions, the EBA will be able to adopt decisions directly addressed to financial operators, under certain conditions.
Strengthening the coordination role of the EBA for international AML related issues
The EBA will be responsible for coordinating material AML supervisory issues at international level, and will, in particular, take a role in co-ordinating cooperation with relevant third country authorities in cases entailing a cross border dimension.
Other non-legislative measures
In the Communication, the EC encourages the ESAs as well as the ECB acting in its supervisory capacity to use its existing powers to enhance the current implement of the AML framework. The EBA is encouraged to take a leading role in relation to these initiatives, including by carrying out a stock-taking exercise allowing an overall identification of the various AML issues relevant from a prudential perspective, as well as a mapping at EU level of existing practices of factoring AML aspects into prudential regulation. On the basis of this stock-taking exercise, the EC also invites the EBA to issue common guidance supporting the EU’s prudential supervisors in appropriately and consistently accounting for AML risks in their activities, and specifying how they should integrate AML aspects into their various tools.
The EC is calling on the European Parliament and the Council to endorse the actions set out in the Communication and to adopt the relevant legislative proposals by early 2019 at the latest.
Moreover, according to the EC, for the purposes of its reports on the implementation of the Fifth Money Laundering Directive, the first of which is to be completed by 11 January 2022, it will consider, in particular, whether the EU AML framework should be set out in a Regulation, as opposed to a Directive. It will also consider whether there is a need to confer specific AML supervisory tasks to a Union body.