30 May Anti-Money Laundering Authority Regulation
Establishing the Anti-Money Laundering Authority (AMLA) has been referred to as the centrepiece of the new Anti-Money Laundering (AML) package by the EU Commission. Broadly speaking, it will promote cooperation and convergence of AML and Countering the Financing of Terrorism (CFT) practices across the EU by monitoring the work of financial supervisors at national level and Financial Intelligence Units (FIUs) and coordinating their joint efforts. According to the European institutions issuing the proposal, the current AML framework suffers from certain shortcomings, especially with regard to its operational efficiency and ability to integrate international recommendations. Money laundering (ML) and terrorist financing (TF) are inherently cross-border crimes and in the absence of an overarching authority responsible for ensuring the harmonised implementation of AML/CFT rules and strengthening cooperation between FIUs, the EU’s financial system remains vulnerable. That is the reason why the EU will be looking to establish the AMLA by 2024. The AMLA will then begin the exercise of its functions and it will have time until 2026 to select its first batch of high-risk entities, which will be under its direct supervision.
As already mentioned, the tasks of the AMLA will primarily revolve around coordinating and assisting national authorities and FIUs so as to ensure the uniform enforcement of AML rules. In the first place, this will entail proposing and managing joint analyses of suspicious transactions and Suspicious Activities Reports with cross-border dimensions. In order to identify such cases, the AMLA will rely on linked reports collected by FIUs. Over time, the AMLA will review such analyses with the purpose of improving their effectiveness in the future. Additionally, in order to facilitate collaboration between Member States, the AMLA will be in charge of developing common standards and reporting templates for FIUs. Over time, the AMLA will also take over management of the AML/CFT database and the interinstitutional information sharing network (FIU.net) from the European Banking Authority (EBA). In that regard, the AMLA will have to guarantee timely access to data for all authorised entities and secure hosting of the FIU.net network, which will be achieved through implementation of the most advanced technologies available.
Beyond coordinating AML/CFT efforts and maintaining relevant information sharing structures, the AMLA will also be in charge of carrying out periodic reviews to ensure that national supervising authorities have sufficient resources and competences to perform their tasks. Should it transpire that any national authority is facing particular challenges due to lack of resources or unusually increased ML and TF risks, the AMLA will have the authority to organise mutual assistance programs, which will include exchange of personnel, best practices and staff trainings. Moreover, it will have to continuously monitor, analyse and exchange information concerning ML and TF risks affecting the internal market. To that end, the AMLA will establish a central database compiling information from all supervisory authorities at national level regarding withdrawals of obliged entities’ authorisations as well as credibility assessments of individual shareholders and board members. The database will be made available to any supervisory authority within the system in order to enable them to duly consider possible shortcomings of specific entities and individuals that might have materialised in other Member States.
The AMLA’s powers can be broadly divided into powers affecting national supervising authorities and FIUs as well as powers over directly supervised obliged entities. Since facilitating cooperation between financial supervising authorities and FIUs within the EU is the principal function of the AMLA, drafting regulatory and implementing technical standards as well as guidelines and recommendations on AML/CFT will be the main tools for improving harmonisation of supervisory practices throughout the Union. Such documents may include, for instance, directly applicable regulatory measures that establish common quantitative approaches to measuring the risk profile of obliged entities or non-binding guidelines on the internal controls that those undertakings should implement. Once drafted, regulatory and implementing technical standards will be submitted to the Commission, which will be responsible for issuing them as proposals for adoption to the EU Parliament and Council.
In addition to its role in the legislative process, the AMLA will also have powers to take over direct supervision of selected financial sector obliged entities. In essence, the riskiest cross-border credit and financial institutions will be chosen to pass under the surveillance of the AMLA. Currently, the proposal envisages that the AMLA will have until 1 January 2025 to submit to the Commission the precise draft regulatory standards setting out the methodology and benchmarks for measuring the risk level of financial undertakings. Nevertheless, the draft Regulation already gives some indication as to what the risk assessment criteria will be. In general, large and complex financial groups, present in a number of Member States, which could be more efficiently supervised at Union level, will be taken over by the AMLA. However, since the size of any particular entity is not the sole indicator of ML and TF risks, the AMLA will also take other criteria into account, such as the average customer profile (e.g. large share of non-resident or politically exposed persons), the trading volumes of the entity under assessment and the number of correspondent banking clients and crypto-asset service providers registered in third countries. Lastly, the AMLA will be able to take over the supervision of credit and financial institutions whose breaches of AML/CFT rules are not timely and appropriately addressed by national authorities and FIUs. The AMLA will have the power to require directly supervised entities to take internal actions, such as reinforcing internal procedures or changing their governance structures through the removal of management members, and impose pecuniary sanctions, ranging anywhere between EUR 100,000 and 1% of the annual turnover of an undertaking.
On the 28th of March 2023, amendments to the proposal for the AMLA regulation have been suggested by the EU Parliament. The EU Parliament wishes to extend the AMLA’s competence to drawing up lists of high-risk non-EU countries. Additionally, the EU Parliament wishes to give the AMLA powers to mediate between national financial supervisors and settle disputes, supervise and investigate the national implementation of the single AML rulebook, ensure stronger oversight of the supervisors in the non-financial sector and receive whistleblower complaints.
4. Advantages and disadvantages of the proposed AMLA Regulation:
Given the current challenges faced by national supervising authorities and FIUs, the benefits of establishing an AMLA are clear. First, having a European level body concerned with establishing and implementing common information reporting standards will gradually result in the creation of a database that allows speedier and more efficiently conducted investigations. Similarly, fostering cooperative efforts between FIUs, in the form of joint analyses of suspicious transactions and activities, will improve the detection of cross-border financial crimes, since missing or contradicting information will become easily identifiable. And last but not least, the proposal for establishing the AMLA must be viewed in the context of the complete legislative package of which it is part. Hence, the combination of the AMLA’s ability to take over direct supervision of obliged entities in breach of AML/CFT rules, which are not sufficiently dealt with by national supervising authorities, and the directly applicable AML/CFT regime, that will be established by the new Anti-Money Laundering Regulation (AMLR), will ensure that there are no safe havens in Europe and that criminals cannot take advantage of regulatory and supervisory fragmentation.
Although theoretically it is hard to find drawbacks to the introduction of an AMLA, in practice a number of difficulties may arise that should also be assessed. One of the major concerns is that the AMLA’s competencies to undertake direct supervision of certain entities may lead to overlaps and duplication of work with national authorities. Such a scenario would not only lead to supervisory inefficiency and misspending of public resources, but also unnecessarily burden obliged entities by introducing an additional layer of compliance and supervisory fees that would be especially harmful to new entrants and innovative businesses. Furthermore, it appears that the AMLA Regulation proposal is based on the proposition that the powers of FIUs are completely harmonised across Member States, which is not yet the case. This circumstance entails the possibility that entities selected for direct supervision may have to comply with different rules than their counterparts supervised at national level. Even more worrying is the fact that, since the proposal envisages that the list of selected entities will be subject to periodic reviews and changes, situations may arise where financial and credit institutions are forced to change their compliance procedures multiple times within relatively short periods of time. Finally, there are problems with the approach to selection of directly supervised entities. Although, a variety of additional criteria would also have to be taken into account, under the current Regulation proposal the size of obliged entities remains the primary factor in the selection procedure, since only credit and financial institutions established in at least 7 Member States would be considered. At the same time, however, the largest entities are not necessarily the ones carrying the largest AML/CFT risk.
Series of blogs AML/CFT
In July 2021, the European Commission presented a new package of legislative proposals to tighten measures against money laundering and terrorist financing across the European Union. The new EU anti-money laundering and counter-terrorist financing (AML/CFT) rules will be extended to the entire crypto sector. In this blog series, we will therefore discuss in detail various topics that may be of interest.
The following topics are covered:
- Overview of the new AML/CFT package
- Transfer of Funds Regulation Amendments
- Anti-Money Laundering Regulation & Directive 6
- Anti-Money Laundering Authority Regulation