By Alexandra Jour-Schroeder at AMLi Boardroom Series, July 22
Two days ago, the Commission adopted its proposal of an “AML package” which essentially delivers on 3 key pillars of our 2020 Action Plan: establishing a single rule book, bringing about an EU AML/CFT supervision and establishing a coordination and support mechanism for FIUs.
It is a pleasure to give you an overview on the main elements of this legislative package.
Why a new regime?
Money laundering and terrorism financing (ML/TF) pose a serious threat to the integrity of the EU economy and financial system and to the security of its citizens. Europol estimated that around 1% of the EU’s annual Gross Domestic Product is involved in suspect financial activity. We have been confronted with a number of cases that have hit the spotlight revealing deficiencies in supervision and the lack of appropriate structures to coordinate both supervisory actions and financial intelligence. We thus need to change the gear and step up action against money laundering and the financing of terrorism.
What is in the package?
- An EU Single Rule Book.
The term “single EU rulebook” refers to a unified AML/CFT regulatory framework which includes directly applicable AML/CFT rules and requirements. These rules will no longer need transposition into national law. The rules at EU level will be more detailed and granular than at present.
The proposal for a Regulation provides that obliged entities will be subject to directly applicable rules.
The list of obliged entities is also extended to (i) crowdfunding service providers falling outside the scope of the EU Crowdfunding Regulation ; (ii) mortgage credit intermediaries and consumer credit providers that are not financial institutions and (iii) operators involved on behalf of third country nationals in the context of investor residence schemes. This is not a closed-ended list. Based on their national risk assessment, and following a notification to the Commission, Member States will still be allowed to apply the requirements laid down in the AML Regulation to other sectors.
The Regulation also foresees harmonized requirements for customer due diligence.
And our “Single Rule Book” will also further specify rules on Beneficial Ownership to further increase the transparency of complex corporate structures. A beneficial owner is any natural person who ultimately owns or controls a legal entity, a trust or similar legal arrangement.
The proposals include more detailed and harmonised rules to clarify the type of information needed to identify beneficial owner(s). The new rules clarify not only the obligations for legal entities and trustees to identify and verify their beneficial owners, but also their requirement to report that information to national beneficial ownership registers.
A single rule book does not mean a uniform rule book. As you know, AML supervision is underpinned by a “risk-based” approach. This means that Member States may still be able to move beyond the Regulation where deemed necessary in areas specified in the Single Rule Book. Let me take one example: the ceilings on cash payment:
We propose to introduce an upper limit of € 10 000 for cash transactions. Currently, 19 Member States have introduced or are in the process of introducing a limitation to cash payment, ranging from 500 EUR in Greece to 10,300 EUR in Czechia. Member States will keep the possibility to maintain lower limits at national level to reduce the risks that cash is laundered by criminals through the purchase of high-value goods. We have introduced a review clause to further lower that cash limit in the future, where appropriate.
- A new AML authority
This is possibly the most innovative part of the package – a new independent EU authority with a mandate that reaches from direct supervision to FIU co-ordination. The authority (AMLA) will become a centrepiece of an integrated AML/CFT supervisory system, consisting of the Authority itself and the national authorities with an AML/CFT supervisory mandate.
Direct European supervision of the riskiest cross-border financial entities will close the loopholes in cross-border supervision. At the same time, AMLA will coordinate national supervisory authorities and assist them to increase their effectiveness in enforcing the single rulebook and ensuring homogenous and high-quality supervisory standards, approaches and risk assessment methodologies.
The Authority is supposed to have ultimately a total staff level of around 250. Of this total it is estimated that around 100 will work on direct supervision of certain Obliged Entities.
Direct supervision of certain high-risk financial entities will only start in 2026, because it can only commence when the harmonised rule book which AMLA will have to enforce is completed and applicable.
AMLA will also be involved in coordinating supervisory actions for the non-financial sector. For this purpose, AMLA will have powers similar to those that EBA currently has for the financial sector. We also propose that where Member States confer AML/CFT supervision on Self-Regulatory Bodies, there must be an oversight by a public authority. This is about ensuring that SRBs carries out their task to the highest standard.
For AMLA to work efficiently, we need to get its governance right. AMLA will have a wide range of tasks and powers, with involvement of various national authorities and bodies. For all the policy and regulatory decisions, these national authorities should be fully in charge. However, for the urgent supervisory decisions towards individual entities or individual authorities, we need to ensure expeditious, effective and efficient decision-making process, reflecting best practices at both national and Union level.
This is why we are proposing a dual structure. All individual supervisory decisions will be taken by an Executive Board consisting of the Authority’s Chair and five permanent independent members, high ranking public office holders with experience and expertise in all areas of Authority’s tasks. The General Board consisting of national authorities will have two alternative compositions – supervisory and FIU, and shall take all regulatory and horizontal policy decisions.
This does not mean that national supervisors will be excluded from the supervisory decision-making process. We aim to create an integrated supervisory system. Direct supervision will be performed through Joint Supervisory Teams with AMLA staff located in Member States. In its supervisory composition, the General Board may also provide its advice to the EB on any decision concerning directly supervised selected obliged entities prepared by the Joint Supervisory team before the adoption of the final decision by the Executive Board.
In our Action Plan, we explored the possibility of entrusting AMLA with both supervisory tasks and an FIU coordination function. Twelve FIUs in the EU currently have supervisory tasks for at least the non-financial sector, while some of them have supervisory tasks for all sectors. According to our analysis, we concluded that this solution would be the best way to achieve synergies and create “bridges” between supervisors and FIUs.
All recent major money laundering cases reported in the EU had a cross-border dimension. The absence of a common structure to underpin cooperation between FIUs leads to situations where joint analyses are not performed for lack of common tools or resources. These divergences reduce the capacity to detect money laundering and terrorism financing early and effectively.
AMLA will act as coordinator and facilitator of cross-border strategic and operational work of national FIUs. Timely identification of trends and typologies at Union level and facilitation of joint analyses of suspicious activities and reports will directly contribute to prevention of incidents of money laundering and terrorism financing in the Union.
We are not proposing that AMLA should become a FIU, but AMLA will play a key role in supporting national FIUs in the conduct of joint analyses.
3) International issues
The package also touches on AML/CFT regime in the international context. However, we don’t plan to change our fundamental approach to third countries. As it is the case today third countries listed by FATF will be listed at Union level, and enhanced EDD will apply. We have suggested to make a difference between “black” and “grey” listed countries. The proposal also suggest to have more harmonised rules on enhanced due diligence across the Union. We propose that the Commission will specify in a Delegated Act which enhanced due diligence measures and countermeasures will apply to a given third country.
We will also continue to have the possibility that the EU can list autonomously a third country if it poses a threat to the EU financial system. The specific rules for this procedure are clearly spelled out in our methodology that was adopted in May last year, and we are fully committed to implementing it.
This means that our policy will be more consistent and risk-based, but also more encompassing. AMLA is expected to issue guidance on trends and risks in third countries.
Let me conclude. Dirty money is highly mobile, and this makes it a complex challenge to deal with. Our AML system is as strong as its weakest link, and this is why more Europe is needed there. We need more Europe to create “bridges” between supervisors, between financial intelligence units and between supervisors and FIUs. We need more Europe since financial crime ignores borders.
We count now on the co-legislators to take our proposals further.