In response to the consequences flowing from the divergent transposition and implementation of EU laws on anti-money laundering and counter-terrorist financing (“AML-CFT”) within EU Member States, and the continued emergence, and increased sophistication, of cross-border financial crime within the EU, in July 2021 the European Commission launched a new AML-CFT legislative package. This legislative package includes proposals for, inter alia, the creation of a new EU Authority, to be named ‘The Anti-Money Laundering Authority’ (“AMLA”), and the enactment of a directly applicable Regulation on AML-CFT.
What is the AMLA?
The AMLA will be a new authority set-up to push forward the EU’s AML-CFT efforts through various means. At present, the European Banking Authority (“EBA”) acts as the EU’s supervisory body on AML-CFT. Following the establishment of the AMLA, the AMLA will take over such role from the EBA and will have more far-reaching powers and supervisory oversight.
What are the objectives of the AMLA?
The main objectives of the AMLA are the following:
- to enhance AML-CFT supervision in the EU by enabling subject persons to apply EU rules on AML-CFT in an adequate, uniform and consistent manner. In this regard, the AMLA is expected to publish regulatory technical standards, guidelines, recommendations and opinions with the aim that where supervision remains at national level, the same supervisory practices and standards apply in principle to all comparable entities;
- to directly supervise certain subject persons having a high inherent exposure to risks of money laundering and/or terrorist financing (“ML/FT”). The number of AML scandals which occurred in the EU in the past decade, possibly also due to the lack of resources and capabilities of the Member States’ Financial Intelligence Units (“FIUs”), has led the EU to take the lead on the direct supervision of certain institutions which pose a high risk of ML/FT. This is similar to the manner in which the EBA supervises significant institutions within the banking sector;
- to strengthen supervisory convergence in the sphere of AML-CFT across the internal market. Having one central AML-CFT authority, which would issue guidelines (both to regulators and to the relevant obliged entities) will help in ensuring a more consistent approach towards AML-CFT compliance. This will ensure that AML-CFT efforts are adopted in the same manner across the EU, thereby reducing jurisdictional shopping when one is assessing where to set up business;
- to oversee the activities of financial regulators and the manner in which they assess obliged entities through their tools and resources. By reviewing and assessing the relevant financial regulator’s tools and assessments, the AMLA will seek to ensure a consistent and uniform approach in the manner in which financial regulators risk assess the obliged entities. This will also aid in ensuring high level supervisory standards and practices;
- to provide FIUs with support to improve their analytical capacity around illicit activities. It is no secret that in a number of instances, FIUs and financial regulators have failed to either identify glaring risks or did not have the necessary resources or capabilities to undertake the relevant analytical assessments. Through the AMLA, analysis should be made easier in view that FIUs may tap into the AMLA’s resources in analysing certain illicit activities and determining the best course of action in particular scenarios;
- to make financial intelligence a key information source for law enforcement agencies. Financial intelligence plays a key role in identifying the various trends and methodologies used by criminals to launder money or used by terrorists in financing terrorist groups. It is therefore crucial that such financial intelligence is shared between FIUs and also law enforcement agencies in order to ameliorate the efforts to prevent ML/FT and, equally importantly, to prosecute persons for undertaking such practices;
- to coordinate peer reviews of supervisory standards and practices and request non-financial supervisors to investigate possible breaches of requirements applicable to obliged entities. Through the results of the supranational risk assessment published by the European Commission, it is amply clear that non-financial businesses and professionals (DNFBPs) pose a certain level of heightened risk of ML/FT. In order to ensure that such proper oversight is undertaken, the AMLA shall carry out periodic reviews and provide assistance to supervisors within such non-financial sectors, thereby ensuring that the required standards are being duly followed by such non-financial regulators; and
- to facilitate joint analyses of cross-border financial crime between FIUs, and between FIUs and other competent authorities. This will be done through the identification of relevant cases and the development of appropriate methods for the joint analyses of cross-border cases. The AMLA will also facilitate join analyses by making available to FIUs information technology and artificial intelligence services and tools for secure information sharing, in order for the FIUs and enforcement agencies are better equipped to analyse data and prosecute perpetrators of financial crime. The AMLA is also expected to promote expert knowledge on detection, analysis, and dissemination methods of suspicious transactions, provide specialised training and assistance to FIUs, and prepare and coordinate threat assessments.
Will the AMLA be responsible for supervising persons qualifying as subject persons under the national AML-CFT legal and regulatory framework?
Subject persons carrying out a “relevant financial business” which are active in a significant number of Member States and have the highest risk profile in several of those Member States will be selected for ongoing direct supervision by the AMLA. The selection process will be based on objective criteria centred on cross-border activity and risk categorisation.
These entities shall include:
- credit institutions (i.e., banks) operating in at least 7 Member States (“Banks’ Cross-Border Activity Threshold”); and
- other financial institutions (including investment firms, certain collective investment schemes, electronic money institutions, payment service providers, life insurance undertakings and life insurance intermediaries) operating in at least 10 Member States (“Other Financial Institutions’ Cross-Border Activity Threshold”).
The inherent risk profile of such subject persons will be classified as low, medium, substantial or high, and their risk profile will be determined in accordance with the methodology and benchmarks to be set out in the Regulatory Technical Standards which will be designed and published by the AMLA.
A credit institution will be subject to direct supervision by the AMLA in the following cases:
- if it meets the Banks’ Cross-Border Activity Threshold;
- if it has a high inherent risk profile in at least 4 Member States; and
- if it has been under an investigation for material breaches of its AML-CFT obligations in at least 1 of such 4 Member States in the previous 3 years.
The other financial institutions referred to above will be subject to direct supervision by the AMLA where such other financial institution:
- meets the Other Financial Institutions’ Cross-Border Activity Threshold; and
- has a high inherent risk profile: (a) in at least 1 Member State where it is established or operates via a subsidiary or branch, and (b) in at least 5 other Member States where it operates via the provision of services on a cross-border basis without the establishment of a subsidiary or branch, or via a network of representative agents.
The list of subject persons selected on the basis of such criteria will be reviewed periodically (every three years).
Interestingly, it will also be possible for the AMLA to directly supervise other subject persons which do not necessarily meet the criteria noted above by triggering a special procedure. This procedure may be availed of by the AMLA in exceptional circumstances, namely where breaches by a subject person of its AML-CFT obligations are not efficiently and adequately dealt with by a national FIU.
Direct supervision (where applicable) will be carried out by joint supervisory teams, led by staff of the AMLA and including staff of the relevant national FIU(s) where the relevant obliged persons are operating. In this way, the AMLA and FIUs are able to have a better understanding of the manner in which the obliged entity is operating, thereby contributing to greater convergence on how the applicable rules shall apply to the entity in question in a consistent manner.
Will the AMLA replace the local Financial Intelligence Analysis Unit?
No. National FIUs will remain in place as key elements of the EU’s enforcement system for AML-CFT. The AMLA will replace national supervisors only as a supervisor of a small number of cross-border financial sector operators falling within the highest risk category (as noted above).
The AMLA will also have an indirect supervisory role over national FIUs. In this context, the AMLA will undertake peer and thematic reviews to identify best and less effective practices and promote high supervisory standards across the Union. The AMLA will also be empowered to issue guidelines, opinions and recommendations to national FIUs.
Will the AMLA’s effectiveness be assessed?
An evaluation of the AMLA’s effectiveness will take place on a periodic basis. By the 31st December, 2029, and every five years thereafter, the European Commission shall assess the AMLA’s performance in relation to, inter alia, its objectives, mandate and tasks.
How will the AMLA be established?
The AMLA will be established in virtue of an EU Regulation, which will be binding in its entirety and directly applicable in all Member States.
When will the AMLA be established and open its doors?
The AMLA will be formally established on the 1st January, 2023, however it will commence its activities and be fully operational with effect from the 1st January, 2024. It will be stationed in a Member State, the details of which should be communicated by the European Commission closer to the AMLA’s date of establishment. The AMLA will reach full resourcing by the end of 2025 and commence direct supervision of certain high-risk subject persons in 2026.