The European Commission set out an ambitious package of legislative proposals on July 20 outlining how the bloc plans to step up its efforts to tackle financial irregularities following a series of scandals.
The measures include the establishment of a new anti-money laundering authority (AMLA) that will have direct supervisory powers and will seek to improve co-ordination between national supervisors and EU financial intelligence units.
The plans also include seek to harmonise national regulations through the creation of the single EU rulebook on anti-money laundering (AML) and terrorism finance.
The new authority – which is scheduled to be up and running by 2024 and expected to have 250 staff – will be responsible for drafting detailed EU AML rules, as well as directly supervising ‘high-risk’ entities in the financial sector, and will be empowered to impose fines totalling millions of euros. The commission’s proposals also include new rules on crypto assets.
“Drastic change is needed to shake up the inertia and the divergence across the EU,” says Anna Bradshaw, a partner at law firm Peters & Peters. “These proposals suggest the EU is looking to considerably up its game on AML.”
A co-ordinated approach
The lack of a joined-up approach and inconsistent enforcement practices by member states has contributed to various scandals. In 2018, for example, US authorities targeted ABLV Bank in Latvia over AML concerns before EU and national supervisors had taken any action.
“These proposals aim to bring conformity to both the letter of AML laws in EU countries, but also how they are interpreted and supervised,” says Nikki Johnstone, a partner at law firm Allen & Overy.
AMLA have the power to direct its laser beam in various hotspots [around the world]
The plans build on recent EU efforts to tackle money laundering – such as the Sixth Anti-Money Laundering Directive which came into effect last year – but could prove significantly more effective, says Alastair Lauder, managing consultant at P2 Consulting.
The well-funded new authority will focus solely on financial crime as opposed to national regulators, such as BaFin in Germany and AMF in France, which cover the whole financial services sector, and is likely to attract leading financial crime professionals.
“AMLA have the power to direct its laser beam on various hotspots [around the world],” Mr Lauder says. “It potentially drives much faster action and co-ordination. Instead of investigations taking over five years it could speed them up. It makes it more likely that senior people will end up in jail.”
New risks for banks
Global banks are likely to pay particular attention to new regulations on preventative obligations – including strengthened provisions on internal policies, controls and procedures – as well as more prescriptive due diligence procedures and proposed revisions to the definition of a politically exposed person, Ms Bradshaw says.
A separate directive concerns provisions for the interconnection of national bank account registers and providing adequate access to this information.
“The risk of bigger fines as well as the potential for direct supervision should concentrate minds at the board and senior management levels [at global banks],” she says.
A key consideration will be the extent to which the EU’s proposals prompt the UK to take corresponding steps to improve supervision and enforcement, Ms Bradshaw adds.
“It will be very difficult for the UK not to follow suit on rule changes, not least because of the practical problems that divergence would cause UK-regulated persons. As a third country, the UK would also be vulnerable to being assessed as a jurisdiction that poses a threat to the EU’s financial system,” she says.
The new proposals may take some time to implement and will need to be ratified by the European Parliament and member states.
“The effort required to update AML procedures [across the bloc] in line with the finalised proposals will be a substantial undertaking,” Ms Johnstone adds.
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