The package includes a proposal for a Regulation establishing the AMLA creating an integrated, EU-level supervisor for countering money laundering and terrorist financing and establishing a support and cooperation mechanism for FIUs. This is also supported by a proposal for a sixth anti-money laundering directive (6AMLD) establishing the mechanisms that member states should put in place to prevent the use of the financial system for ML or terrorist financing (TF) purposes.
AMLA will sit at the center of an enhanced EU AML/CFT supervisory system, directly supervising some key European Financial Institutions and promoting international cooperation and consistency between EU supervisors.
Currently at the EU level, both the European central bank (ECB) and the European banking authority (EBA) act as supervisors. The EBA, which sets AML/CFT standards for the banking sector, plays an especially prominent AML/CFT role since its mandate was expanded in January 2020. While the EBA has coordinated investigations and reviewed breaches of AML/CFT standards, it lacks formal enforcement powers, experience outside of the banking sector and an adequate governance structure. Further, with a small AML/CFT team of approximately 10 people, the EBA is not resourced to effectively supervise a range of EU firms (compared with the planned 250 resources for AMLA).
Scope of AMLA supervision and enforcement
Once a harmonized EU AML rulebook has been successfully implemented, AMLA will directly supervise the highest-risk financial institutions with a presence in multiple EU jurisdictions, known as selected obliged entities, via joint teams led by AMLA, but including staff of national supervisory authorities. selected obliged entities will be supervised by AMLA with a whole of EU focus, considering the ML or TF risk posed not by individual entities, but by the entire group. While this will mean enhanced regulatory focus on these institutions, they may also benefit from interacting with a single EU supervisory body, potentially reducing the cost of compliance.
Other financial institutions and all non-financial institutions which are subject to the AML rulebook across the EU will be indirectly supervised by AMLA, through AMLA’s coordination of national supervisors and power to set supervisory standards.
AMLA may direct national supervisors to enforce the AML rulebook in respect of any firm and where the local supervisory regime is not enforcing EU law effectively, AMLA may directly intervene. This is anticipated to enhance regulatory focus in jurisdictions where local regulators have been historically less active.
AMLA key tasks and activities
For directly supervised obliged entities, AMLA is expected to be responsible for ensuring compliance with AML/CFT regulations. This is also expected to include coordinating with other supervisors to establish group-wide supervision, as well as establishing and maintaining a database on risks and vulnerabilities of obliged entities to support supervisory activity.
AMLA’s key tasks in relation to EU national regulators will be issuing formal opinions and guidance to promote consistency in the application of the AML rulebook. AMLA will also promote co-operation amongst regulators and will publish thematic reviews of EU-wide ML or TF trends.
In addition, AMLA will regularly assess the effectiveness of financial and non-financial supervisors by assessing their strategy, capacity and resourcing and by functioning as a supervisor of last resort to enforce EU law.
Powers and authority of AMLA
AMLA will be responsible for establishing joint supervisory teams with all relevant national regulators and each selected obliged entity. This is intended to give a group-wide, European view of ML or TF risk.
The proposal gives AMLA the authority to issue guidance to and conduct investigations of selected obliged entities and to impose fines for breaches of ML or CFT rules. Fines can be up to €10m or 10% of annual turnover, depending on the nature of the breach, and further fines can be imposed for each day a breach is un-remediated.
With respect to FIUs, AMLA will be able to obtain relevant information and documentation for it to perform its tasks, as well as issue guidelines and recommendations. AMLA is also expected to provide technical advice on the development of standards and future rules to the European parliament, council and commission.
Reporting of ML or TF risk by national supervisors
AMLA can, on its own account, ask a national regulator to investigate a non-supervised entity for breaches of EU Law. If AMLA is not content with the financial supervisor’s response, then they may act as though they are the supervisor, including commencing an investigation and/or issuing fines.
Further where an entity, not directly supervised, is exposed to very substantial ML or TF risk, then financial supervisors need to provide formal notification to AMLA.
What are the potential impacts for firms?
The proposal to introduce a stand-alone, well-resourced, and single EU supervisor promises to improve the consistency and standard of AML/CFT supervision across the region. AMLA will work to ensure the consistent application of the new AML rulebook by directly supervising selected high-risk firms and through monitoring national supervisors to ensure they are acting in line with EU standards and AMLA’s expectations.
Accordingly, while all firms should consider the implications of this proposal, it is expected that AMLA will have the greatest impact on:
- Firms with a significant presence across the EU and higher ML or TF risk. These should expect direct supervision by AMLA.
- Firms operating in member states with weaker AML/CFT regimes. These should anticipate material changes and enhancements to their local AML/CFT frameworks as regulatory and supervisory standards increase, including potential direct supervision by AMLA.
- Non-financial sector firms who traditionally have been subject to limited AML/CFT supervision. These should prepare for a more noticeable supervisory presence as AMLA oversees the enforcement of AML rules by national regulators in non-financial sectors industries such as gambling, manufacturing, and real estate.
In the near term, it is likely that many firms will need to afford attention and resources in light of heightened supervisory presence and enhanced regulatory standards. Selected Obligated Entities will also need to consider the impact on their budget of being required to contribute supervisory fees to AMLA.
As the unified framework develops in tandem with the single unified supervisor, all firms will need to consider to what extent they European-ise their compliance functions - rather than continuing to operate in national regulatory silos. In some instances, this may mean that systems or controls mandated by existing national regulators may become less relevant. Instead, EU-wide controls may be both more transparent to the regulator and more efficient for firms to manage. In other instances, firms may need to consider whether their existing assessment and control of risk looks holistically across the EU.