For years now, the EU has been working towards creating a single set of rules on money laundering and terrorist financing that would apply to all member states. In line with this approach, in May 2020, the European Commission published an action plan for the next 12 months on strengthening the rules on combating money laundering and terrorist financing and closing any gaps and weak links in the EU’s rules. The action plan comprises six pillars and aims to harmonize the EU rules and make them more effective. The six pillars include effective application of the EU rules, a single EU rulebook, EU-level supervision, a coordination and support mechanism for member state Financial Intelligence Units (FIUs), enforcing EU-level criminal law provisions and information exchange and the EU’s global role.
In this article, we will focus on EU-level supervision. Pillar three of the action plan highlights that due to the way the rules are supervised at the member-state level, the current system of supervision is prone to develop gaps. The European Commission, therefore, proposed to create an EU-level supervisor to close these gaps. After numerous discussions, it was decided that a new EU supervisory body would be established, as opposed to empowering an existing body like the EBA or the ECB with this new function.
The new authority will have direct supervisory powers over the riskiest cross-border institutions. It will oversee entities non-banking financial transactions; entities such as banks; and insurance, securities and estate agents. It will be responsible for general inspections, where required, on-site visits and off-site supervision like review of internal policies, procedures and controls of the supervised entities and documentation held on customers and transactions. The EU-level supervisor will have power to impose supervisory measures and administrative sanctions, where required, and also, in exceptional situations, take over supervision from a national supervisor.
The significant benefit of the new supervisory authority would be its ability to act much faster than, for example, the EBA in the current anti-money laundering (AML) regime (reminder: the EBA is currently responsible for AML at the EU level, however, it is only one of their many responsibilities). This will require a great deal of cooperation between the new authority and the already existing EU-level institutions like the EBA or the ECB, and the national level competent authorities and national FIUs.
The upcoming AML reform and introduction of the EU-level supervisor should also benefit the multinational institutions and their clients, who, currently, have to consider different AML requirements of each national regulator.
The new AML reform would mean a coordinated and unified AML approach between all EU member states. This process, however, might be quite challenging, and it may take several years to achieve a satisfactory level of cooperation to a unified AML approach. At present, we are still waiting for some EU countries to transpose the fourth and fifth AMLD into national laws. It is estimated that the new AML authority could be established as early as 2024.
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