Navigating the new age of anti-money laundering efforts in Europe

Back in March, the European Parliament took a significant step towards strengthening anti-money laundering (AML) and countering the financing of terrorism (CFT) efforts. It voted in favour of creating a specialized entity with competence in AML – provisionally named the Anti-Money Laundering Authority (AMLA).

Consequently, the AML competences currently conferred on the European Banking Authority’s (EBA) will be transferred to AMLA. Its staff will initially be composed of around 300 people, including around 100 dedicated to the direct supervision of selected obliged entities.

The role of AMLA

AMLA’s mission is twofold. First, it seeks to harmonize the diverse AML regulations within the EU. AMLA will have to establish detailed rules which will be submitted to the European Commission for approval. It will also make sure that the way anti-money laundering laws are applied is consistent across Europe. This unification is a hot topic as there are significant differences in interpretation according to the countries.

Second, AMLA will actively monitor and directly supervise entities bound by AML rules. In this context, it will ensure the strengthening of coordination between the various financial intelligence units (FIUs).

The obliged entities will be selected by AMLA using two methods. The first, knows as the “standard” method, is used to select financial entities active across the EU whose money laundering risk profile is considered to be the highest. These entities will be re-evaluated every three years.

The second is an “emergency” method, which targets financial entities with recurring failings. If national authorities are not able to address these issues promptly and effectively, AMLA can step in and may seek a decision from the European Commission to place the entity under its direct supervision.

Direct supervisory powers and sanctions

Supervision of selected obliged entities will be a collaborative effort between AMLA and the relevant national supervisory authorities. Joint surveillance teams from both sides will be put in place to ensure oversight.

As part of its supervisory role, AMLA will be empowered to request any necessary information from obliged entities, conduct audits, demand documents, inspect records and require written explanations.

In terms of enforcement, AMLA’s sanctions must be effective, proportionate and dissuasive, with the ability to impose penalties of up to 10% of an entity’s annual turnover or €10 million. Additionally, AMLA may take measures aimed at preventing or ending the shortcomings of a selected obliged entity. This can include a review of compliance procedures, altering governance structures, or restricting business operations. In severe cases, AMLA could recommend revoking the entity’s authorisation through the relevant national supervisory authority.

Overseeing national supervisors

To ensure the uniform application of supervisory practices across the EU, AMLA will conduct regular assessments of both, national financial and non-financial supervisory authorities. These evaluations will determine if national bodies have adequate resources and authority to fulfil their regulatory duties.

Following these reviews, AMLA will issue a report detailing the findings and suggest necessary corrective actions, which could be implemented as either recommendations or guidelines.

Establishing AML supervisory networks

The European Commission’s “package of anti-money laundering measures” includes Directive COM(2021) 423, mandating member states to establish AML supervisory colleges. These are required for any non-selected credit or financial institution that operates across a minimum of two other member states than the one where its registered office is located. They also apply to third country organisations that have set up institutions in at least three member states.

These colleges will be used to exchange information, provide assistance or coordinate the supervisory approach of the subject institution concerned.

Strengthening the coordination of FIUs

The proposed AMLA regulation also gives AMLA the task of coordinating financial intelligence units (FIUs), in particular by conducting joint analyses. If a member state FIU identifies and informs AMLA of a need to conduct a multi-FIU analysis, AMLA will invite the FIUs concerned to participate. AMLA may also request data from the various FIUs, gather information on their activities and produce guidelines and recommendations.

However, the proposed AMLA regulation expressly states that  AMLA does not under any circumstances replace the national FIUs.

In conclusion, time has come for national regulators to enforce the European Directive with more rigour than ever before. The use of technology will be highly critical, especially for the configuration of platforms with audit and reporting capabilities. These platforms should also be able to accurately detect new suspicious behaviours.

This is what the industry is asking for, given that criminals are adept at avoiding detection. They are perfectly informed about the common rules in place and how to work around them.

AI will also clearly have to come to the rescue of all the players of the market, regulators and supervised entities, in a very short time period. Adoption is AI is happening now, let’s not wait.