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Anti-money laundering policy and regulation continue to evolve in the European Union, but the reality of central federal authority remains some way off.
The European Commission has proposed new initiatives to further harmonise anti-money laundering (AML) supervision in the EU, although it is unclear whether these proposals will still come into force before the European elections next year. We expect to see further legislative attempts at increased European harmonisation in this field, although it seems unlikely that one central European anti-money laundering agency will be introduced in the short term.
The Fifth AML Directive, which came into force on 9 July 2018, was a response to recent terrorist attacks across the EU and the offshore leaks investigated in the Panama papers. EU Member States have until January 2020 to implement the directive into national law.
The Directive introduced four key changes to the AML regime:
The Fifth AML Directive also includes the following measures:
On 12 November 2018, the Sixth AML Directive was published in the official Journal of the EU. This directive aims to combat money laundering with the use of criminal law and enables more efficient and swifter cross-border cooperation between Member States. The Sixth AML Directive will need to be transposed into national law by 3 December 2020.
The Sixth AML Directive includes the following important changes:
Following recent incidents, the European Commission (EC) reviewed the effectiveness of the supervisory architecture and invited the chairpersons of the European Supervisory Authorities (ESAs) to establish a joint working group "to initiate a collective reflection on the ways of improving the current framework for cooperation between AML and prudential supervisors".
On 12 September 2018, the EC issued a communication on strengthening the Union framework for prudential and anti-money laundering supervision for financial institutions.
The EC indicates that fighting effectively against financial crime, including tax crime, needs a proper implementation of the new rules (including the Fifth AML Directive) and a stronger coordination between the different authorities.
In its communication, the EC sets out a strategy based on the analysis carried out by the joint working group. As part of the proposed strategy, the European Commission is proposing a number of short-term legislative and non-legislative initiatives, as well as a number of longer-term objectives.
In the short term, the EC observes that certain provisions in sectoral legislation, and in particular in the Capital Requirements Directive (CRD), may have an impact on AML matters. In this respect, the EC refers to the confidentiality regime in the CRD in combination with the absence of a clear obligation for the prudential supervisors to cooperate with the AML authorities and bodies.
The EC is proposing to amend CRD in two respects. Firstly, in the context of enhancing information exchange requirements, all relevant authorities and bodies that receive, analyse and process information should be explicitly covered by confidentiality waivers. Also, with respect to the duty of cooperation, relevant authorities should have the possibility to refer disagreements on cooperation to the EBA.
The EC is also proposing a number of measures aimed at strengthening supervisory convergence.
These measures include clarifying in more detail the European Banking Authority's (EBA) anti-money laundering-related tasks. As such it proposes that the EBA should carry out periodic independent reviews on anti-money laundering issues, with expert input from the proposed Anti-Money Laundering Standing Committee. Where a review reveals serious shortcomings, it is proposed that the EBA should inform the European Parliament, the Council and the Commission.
The EBA should also carry out regular risk assessment exercises to test strategies and resources in the context of anti-money laundering risks. Finally, the enforcement capacity of the EBA should be strengthened. It is proposed that the EBA should be able to request national supervisors to investigate cases where financial sector operators are alleged to have breached their obligations under the AML Directive and should under certain conditions be able to adopt decisions directly addressed to financial sector operators. The EC also proposes to reinforce cooperation with third-country authorities.
Proposed short-term non-legislative initiatives include the expansion of the Risk-Based Supervision Joint Guidelines to specify common procedures and methodologies, more stringent reviews of the activities of anti-money laundering authorities and a more proactive role for the EBA in the establishment of contacts with third-country authorities. Clarifying the division of tasks between the European Central Bank and the national competent authorities is also highlighted as a point of attention.
In the longer term, the debate on a central European AML authority is ongoing. While it is unlikely that such a body will be established before the next elections, it is clearly a continuing topic of debate.
The EC indicates that "in particular, transformation of the Anti-Money Laundering Directive into a Regulation, which would have the potential of setting a harmonised, directly applicable Union regulatory anti-money laundering framework should be considered". Indeed, differences in national implementation can still cause friction in the regulatory framework.
In addition, regarding the supervisory architecture, the communication indicates: "Different alternatives could also be envisaged in order to ensure high-quality and consistent anti-money laundering supervision, seamless information exchange and optimal cooperation between all relevant authorities in the Union. This may require conferring specific anti-money laundering supervisory tasks to a Union body".
Effective AML policy and enforcement in EU Member States are essential given the potential negative impact of shortcomings in AML enforcement within individual institutions and individual Member States on the overall soundness, integrity and reputation of the entire financial system.
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