European Commission Proposes Stronger AML Supervision for Financial Sector

Today, the European Commission proposed to amend the Regulation on the European Banking Authority (EBA) in order to strengthen the EBA’s role with regard to money-laundering and terrorist financing threats.  According to the Commission,

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, in relation to three issues in particular:

  • Delayed and insufficient supervisory actions to tackle weaknesses in financial institutions’ anti-money laundering [(AML)] risk management;
  • shortcomings with respect to cooperation and information sharing both at domestic level, between prudential and anti-money laundering authorities, and between authorities in different Member States;
  • lack of common arrangements for the cooperation with third countries in relation to the anti-money laundering supervision of financial institution[s].

To address these issues, the Commission proposed “to introduce a set of targeted amendments to the existing legislation on prudential supervision and the regulatory framework of the European Supervisory Authorities” (i.e., the EBA, the European Securities and Markets Authority, and the European Insurance and Occupational Pensions Authority).  Those amendment would charge the EBA with AML supervisory and coordination responsibilities in the financial sector across the European Union (EU).

In particular, because the supervision of compliance with AML legislation is carried out at the national level. the Commission proposed to make the EBA’s AML mandate “more explicit and more comprehensive,” by amending the Regulation in six respects:

  • “ensure that breaches of anti-money laundering rules are consistently investigated,” by empowering the EBA to request national AML supervisors “to investigate potential material breaches and to request them to consider targeted actions – such as sanctions”;
  • provide that the national AML supervisors “comply with EU rules and cooperate properly with prudential supervisors”, including, as a last resort if national AML authorities do not act, authorizing the EBA “to address decisions directly to individual financial sector operators”;
  • “enhance the quality of supervision through common standards, periodic reviews of national supervisory authorities and risk-assessments”;
  • “enable the collection of information on anti-money laundering risks and trends and fostering exchange of such information between national supervisory authorities (so-called data hubs);
  • “facilitate cooperation with non-EU countries on cross-border cases”; and
  • “establish a new permanent committee that brings together national anti-money laundering supervisory authorities.”

Finally, the Commission urged the EU Parliament and Council to consider the proposed amendments immediately and “to reach agreement on [them] swiftly.”

Note: Only last week, even after the spate of publicity relating to significant AML failures at institutions such as ING and Danske Bank, EU authorities reportedly were contemplating delaying revisions in the EU’s AML supervisory framework to mid- to late 2019.  The latest Danske Bank report, that as much as $150 billion in transactions moved through its Estonian branch between 2007 and 2015, may well have prompted the Commission to conclude that some immediate action was necessary.

Today’s Commission release on the proposal made clear that the Commission views the EBA Regulation amendments as only “part of a broader strategy to strengthen the EU framework for prudential and anti-money laundering supervision for financial institutions,” which it would announce in a Communication.  In the short term, however, it is unclear whether the EBA is in a position to take on even the additional responsibilities in the proposal.  A report by a Commission group of experts reportedly urged enhanced AML supervision, but acknowledged that the EBA “lacks staff to carry out this additional task and is in the process of moving its headquarters from London to Paris after Britain’s vote to leave the EU.”  Lawyers and compliance officers with AML responsibilities will need to track developments on the Commission proposal closely over the next several months.

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