Court of Auditors – New AML/CFT supervision model: expectations vs feasibility
The European Court of Auditors held a high-level seminar titled ‘New EU AML-CTF supervision model: expectations vs feasibility’ in which the main topic of discussion was the proposed AMLA (Anti-Money Laundering Authority). Nevertheless, the panel of experts shared interesting insights on the overall European AML/CFT framework in place as well as the series of challenges currently faced by the Union.
Progress made with the legislative package
The first part of the seminar focused on the progress made with the legislative package where speakers agreed on the fact that money laundering and terrorism financing pose a threat not only to the internal markets but also to the security of the EU and its citizens. Therefore, all relevant stakeholders must work together in tackling financial crime.
There is a sense of urgency about this topic, stemming from deficiencies in the current AML/CFT framework such as the heavy reliance on national implementation measures, inconsistency, uncoordinated implementation, and application of the rules. For this reason, a major revision of the rules related to ML is proposed in an ambitious way intended to strengthen the system. In particular, the proposed AMLA is aimed at being a game changer against money laundering by becoming the center of the supervisory system while coordinating and implementing high standards. It will supervise sectors at a higher risk of money laundering and will be able to cooperate with national supervisors, the non-financial sector, and the Financial Intelligence Units (FIUs). While negotiations are still underway, interesting proposals are being taken into account in the current discussions, such as the involvement of European agencies like Europol and Eurojust.
The AMLA is intended to start in 2026 with full supervisory capacities. The Commission initially considered 250 FTEs for 2026 with the idea of directly supervising around 15 obliged entities, even though the Council is considering an expansion to 40 entities. This ambitious idea is inextricably linked to the allocation of budget and the decision of the seat, which is a highly political discussion. Furthermore, it is worth noting that the Commission will not abdicate its role, but it will continue with setting standards and drafting the methodology for European supervision as well as participation in the governance structure of the AMLA.
An interesting insight was provided by the representative of the IMF whereby it is clear that financial crimes in the broad sense pose a major fact and the fact that proceeds of crime earned elsewhere but laundered through the EU makes it more difficult to detect. The current efforts are headed in the right direction but they are perhaps not enough. The proposal makes it clear that each obliged entity must have to be supervised concerning its products, customers, and the quality of controls they have in place. However, the fact that the AMLA will possibly cover crypto asset providers adds another layer of complexity to the discussed proposal.
Moreover, there is the need to emphasize acquiring and accessing information as well as the response that obliged entities need to have concerning supervisory activities. Particularly, how will the EU respond to obliged entities that will transfer their activities outside the jurisdiction of the AMLA to avoid supervision, or how to address inherent threats coming from outside the EU. These issues can be addressed through cross-border cooperation with other AML/CFT supervisors outside the region and by having in place effective dissuasive sanctions.
Other problems identified by the panelists were, mainly, fragmentation, a ticking-the-box approach, and people working in silence. Fragmentation derives from the minimum level of harmonization in the EU concerning AML/CFT policies and it significantly complicates the work of relevant stakeholders while facilitating the activities of criminals that exploit inconsistencies in the weakest jurisdictions.
It is for this reason that a very legalistic approach hinders banks and other financial institutions from allocating resources effectively and identifying the most relevant predicate offenses by overflowing the FIUs with unusual transaction reports and a high number of false positives. Additionally, people working in silence relate to the lack of cooperation, lack of information sharing, and the sub-optimal use of data science and new technologies. These are essential issues that need to be addressed in the current negotiations of the new AML package as a whole, but it is important that the AMLA is designed as a datahub and that it can collect information from the FIUs to identify the predicate offenses and cross-border criminal activities.
National coordination with the new AMLA
The second part of the seminar focused on how particular sectors see the new AMLA and the challenges that must be addressed to successfully implement the proposal. The fact that hat the overall level of effectiveness in the EU has not improved is a sign of having a better regulatory landscape and supervisory system.
Not everything can be in the legislation passed by the Parliament since criminals are constantly reinventing their methods and new threats are constantly emerging. Due to this, it is intended for the AMLA to have the responsibility to develop its own working methods and to rely on a risk-based approach and state-of-the-art supervisory standards. It will be able to conclude supervisory agreements with authorities elsewhere, which is deemed to be an essential feature of its functioning.
To successfully improve the system as a whole, governing structures of banks and other financial institutions must be analyzed. The European Central Bank (ECB) pointed out that banks need to review their business models and governance structures and have a stricter approach to de-risking customers when they are posing a high risk in comparison to their risk appetite. The ECB is of the view that the AMLA needs to be ambitious, but also realistic in its approach by supervising one obliged entity per Member State in line with the risk-based approach, which will help to create a common approach to overall AML supervision.
The seminar concluded with a recognition of the need to engage in the fight against financial crime willingly and not by fear. It should not be done to meet the minimum requirements or to avoid regulators imposing sanctions, but rather by understanding the compliance culture and simulating it among staff working for relevant stakeholders. The future AMLA staff must be properly trained and engage with this vision to ensure its success.
Complexity remains and it is expected that negotiators will need to bear in mind essential topics such as data and how it will be used for cooperation between banks when privacy issues are at stake. Additionally, difficulties in practice to implement a risk-based approach will need to be addressed in the comprehensive AML package. It is yet to be seen how will the seat of the AMLA will be decided upon as well as the budget since its operation will largely depend on a successful negotiation on these topics.