EU update – November 2020

November 24, 2020

EU To Establish Bloc-Wide AML Regulator By March 2021

After an agreement with finance ministers, the European Union will move forward in creating a bloc-wide financial crime compliance authority. It is hoped that the new authority will coordinate and enforce AML rules by March 2021. They will directly oversee country regulators and financial institutions and will have the power to carry out direct reviews, investigations and impose monetary penalties.

We may also see an EU level supervisor to oversee a select number of high-risk regulated entities, with the power to supersede the national supervisor in exceptional situations. It is thought that the threat of such a situation will force national supervisors to toe the line and cooperate with any expectations from the new EU authority.

This is just one part of a 6 pillar Action Plan published by the European commission earlier this year, which came about following Baltic and Nordic banking scandals highlighting the EUs weaknesses in AML/CFT oversite. These cases uncovered failures that allowed an estimated €200 billion to be laundered through accounts and transactions tied to high-risk regions, like Russia between 2007 and 2015. Several top executives within the banks in Denmark and Sweden were fired, and the scandal caused regulators in the regions to be scrutinised.

The responsibilities of the EU AML/CFT supervisor should “include the right to general inspections – including requesting information, examining records and conducting on-site and off-site supervision – as well as the right to impose supervisory measures and administrative sanctions,” according to the council.

This would allow the investigation of large banking groups operating in multiple member states, such as the Danske Bank. Having the ability to review and assess such banking groups across multiple regions and against a single rule book would make an easier job of uncovering gaps and weaknesses.

Currently, when countries are failing or delaying the adoption of the EU’s AMLD5 into national law, the commission has to first review a country, then send a reasoned opinion, then refer the matter to the EU Court of Justice and then can finally start levying monetary penalties for non-compliance.

The aim here is to have a single EU rulebook for AML, with each country managing AML in line with this, and the EU Supervisor ensuring that each member state is achieving compliance from their regulated sectors. Doesn’t seem too far from where we are now, however a big change should be the speed at which the EU can step in and not only monitor but penalise both the national supervisors and institutions themselves.

This won’t be an overnight success, with some states bound to push back at every turn. For those more welcoming of these changes, the new EU AML/CFT supervisor with need to work together with each of the 27 member states FIU and law enforcement agencies to establish a consistent framework for working with each.

This should be a game changing move for AML in the EU. Year on year we learn about scandals form the recent past, and I don’t think we have heard the last of them yet. However, hopefully these changes will mean that such massive failures aren’t seen in the EU from 2021 onwards.