AML/CTF Response of the EU - Update

The AML package presented by the EU Commission in July 2019, revealed the significant shortcomings of credit institutions’ risk management and the surveillance by supervisory authorities alike. The incapacity of current arrangements to prevent and handle incidents resulting from cross-border activities as well as the uneven quality and effectiveness of the supervisory framework and implementation across the EU raised deep concerns. 

Not willing to wait for more issues to arise before building an effective AML/CTF supervision, the EU set forth an AML action plan in May 2020, to become more involved in the key areas of AML/CTF from an EU perspective. 

While we patiently expect the revelation of the full AML package in July 2021, the speech given at the AML Intelligence Boardroom Series on 17 May, 2021, by Mairead McGuinness, the European Commissioner for Financial services, Financial Stability and Capital Markets Union, already provides a few updates on the different action plan pillars:

1. Effective Application of EU Rules

Enforcing the AML regulatory framework remains a top priority of the EU. Future enforcement actions will be based on already commissioned studies, which examine how the current EU AML framework has been implemented in the different Member States.

Later this year, the focus will be on the cross-border interconnection between national beneficial ownership registers. 

2. A Single EU Rulebook 

In order to address the insufficient level of detail on EU level, which results in uneven transpositions across the Union, the EU is going to adopt directly-applicable EU regulations for the private sector in the most substantial areas. The key idea is to increase EU-level involvement for areas posing risks to the EU as a whole.

Furthermore, the list of sectors covered by AML rules will be aligned with Financial Action Task Force (FATF) standards and cover all types of Virtual Asset Service Providers as Obliged Entities. For instance, the traceability of transfers of virtual assets will be added to the scope of the existing Transfer of Funds regulation imposing transparency on the senders and receivers of payments. 

Moreover, the new AML Authority will issue legally binding technical standards in different areas, such as Customer Due Diligence, to add more granularity to the top-level rules in the regulation and bring about more harmonisation.

Finally, an upper limit for cash purchases of EUR 10,000 will be implemented EU-wide. 

3. EU-Level Supervision 

The EU Commissioner announced that the new AML Authority is expected to have the following roles and responsibilities:

• It will be the direct supervisor of certain financial sector entities which operate cross-border and are in the highest risk category;

• It will act as a coordinator and overseer of national supervisors for other entities, including - with a lighter touch - entities outside the financial sector;

• It will coordinate and provide support to Financial Intelligence Units;

• It will also have a regulatory role, preparing technical standards and guidelines; and finally

• The new Authority will advise the Commission, for example on AML risks outside the EU.

The AML Authority will directly supervise a limited number of financial institutions to relieve national supervisors of a significant burden and to gain experience in direct supervision. The direct supervision will take place via Joint Supervisory Teams working with national supervisors, which will also help bring together the AML Authority and national supervisors.

The AML Authority will be funded to a significant degree from fees from Obliged Entities. Such fees will be made reasonable and manageable.

In terms of timeline, the AML Authority will commence in 2024, expecting to reach full staffing in 2025 and start carrying out direct supervision in 2026.

4. A Coordination and Support Mechanism for Member States’ Financial Intelligence Units (FIUs)

The new AML Authority will coordinate and support the work of Member States’ FIUs combining supervisory and FIU coordination tasks "under one roof".

5. Enforcing EU-level criminal law provisions and information exchange 

Based on a round of consultations to be launched in near future, a guidance on information exchange and public-private partnerships will be published by the end of the year.

6. The EU’s global role 

In line with the Action Plan published in May 2020, the Commissioner reinforced the EU’s intention to strengthen its active involvement within the FATF and globally in the area of AML/CTF. 

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