In the recent talk FEBIS had with Filipe Cruz, CEO of PEPData about the most recent Anti-Money Laundering (AML) package presented by the EC, he shared with us some key aspects from this package to help us understand what to expect from it.
What is the new AML package presented by the European Commission?
First, I believe this is the most ambitious AML package, because it focuses on many challenges that have been identified in recent years in several different areas. In particular, the package seeks to respond to the latest money laundering scandals that have been revealed by the media.
Account must also be taken of the fact that suspicious financial activities involve around 1% of the European's annual gross domestic product, according to Europol data, but personally I believe it is more than 6%.
The package presented by the European Commission consists of four legislative proposals. Three regulations and one directive:
- A Regulation establishing a European AML Authority, in the form of a decentralized EU regulatory agency;
- A new AML Regulation that gets to harmonize a set of rules, including a revised EU list of entities subject to AML rules (known as obliged entities) and which also includes references to beneficial owners;
- A revision of the 2015 Funds Transfers Regulation (Regulation 2015/847);
- An AML Directive, which will replace the current Directive 2015/849 and will include provisions not suitable for inclusion in a Regulation and which will require transposition into national law, such as rules applicable to national supervisory authorities and Financial Intelligence Units (FIUs) in Member States.
Why the application of 3 regulations instead of directives?
One of the main challenges that the package seeks to reply to is the fragmented way in which the current directive is applied in all member states, with new Regulations directly applicable in the laws of each member state, without the need for transposition and adaptation to national legislation.
Could you give us a summary of these guidelines?
Very briefly, the Single rulebook introduces a single set of harmonized rules, including for example more detailed rules on due diligence, on ultimate beneficial ownership and the powers and tasks of supervisors and FIUs.
In relation to the Regulation on the establishment of a European Anti-Money Laundering Authority (AMLA), it will accelerate this constitution, which will act as the central coordinating authority for national authorities to ensure that the private sector correctly and consistently applies EU rules.
Regarding the revision of Regulation 2015/847/EU it will allow to track crypto-assets transfers and limit large cash payments.
How will AMLA help member states?
AMLA will cover a problem that has been repeatedly identified: the inability of member states and the EBA - European Banking Authority, to effectively supervise the financial and non-financial system in order to prevent money laundering.
AMLA will be responsible for:
- directly supervising the highest risk entities in the financial sector called selected obliged entities. These will benefit from having a single supervisor rather than multiple national supervisors, which will simplify compliance with the applied regime.
- indirectly supervise the non-financial sector. These will still benefit from more harmonized rules, with fewer divergences between different national regimes
- coordinate the FIUs (Financial Intelligence Units) of the member states.
- AMLA ensures that a supervision that used to be essentially in the capacity of states will now be a European effort. This will be difficult to negotiate with the Council, but Member States will have essential help in combating money laundering. In the non-financial sector and in some aspects of the financial sector (in non-selected obliged entities), the States will continue to be the main player, with AMLA taking on a coordinating and supervisory role.
- The creation of the Authority will enable supervision to be more centralized, in a single entity and not in several as has been the case in the past, it will give States less “room for free thinking”, centralize information, data, etc. It should make the fight against money laundering more effective, rapid and coordinated.
- AMLA will also be responsible for creating coordination and control mechanisms between the FIUs of the Member States.
- With regard to supervision, the effectiveness of enforcement varies between Member States due to differences in national resources and practices. FIUs do not currently have common methods and harmonized templates, which makes joint analysis difficult and leads to insufficient detection of operations and activities potentially related to money laundering and terrorism financing.
- The Authority will play a vital role in improving the exchange of information and cooperation between FIUs. The Authority will serve as a support and coordination platform, assisting the work of FIUs, notably in the joint analysis of suspicious transaction reports and suspicious activity reports with a significant cross-border footprint. In addition, the Authority will enable the development of common reporting templates and standards to be used by FIUs in the EU.
- All obliged entities, including purely national entities (with no cross-border activity), should therefore benefit from improved supervision (thanks to the efforts that will be undertaken by the EU authority to help all national supervisors achieve the best levels of performance) and better feedback from FIUs, allowing for more effective reporting of suspicious transactions and activities.
Will national authorities be emptied of their role?
- National supervisors and FIUs will remain in place as key elements of the EU AML enforcement system. The EU authority will only replace national supervisors for a small number of cross-border financial sector entities in the highest risk category. The new package will create an integrated system of AML supervision in the EU, with close involvement of national supervisors and the EU AML authority. The authority will also play a key role in supporting joint analysis by national FIUs but will not itself be a FIU nor will it replace national FIUs.
- This model already works in banking supervision without major problems. And although states will always find it difficult to relinquish supervisory powers to a European authority, the fact is that in areas where this has already happened, supervision improves, and the application of European law becomes easier and more uniform within the internal market. At the end of the day, these are advantages not so much for the States, but for the market players, who, by gaining greater consistency of decisions and greater harmonization of the application of rules, have an easier time in a cross-border operations, without unnecessary difficulties.
Could you tell us more about the Single Rulebook?
- The Single Rulebook refers to a unified regulatory framework on AML, which will include both directly applicable rules and requirements imposed on obliged entities;
- Replacing certain rules in a Directive with more harmonized and directly applicable rules in a Regulation will eliminate the need for transposition work in Member States and facilitate the activity of cross-border entities in the EU.
- Finally, the greater degree of harmonization of anti-money laundering rules in a number of specific areas will facilitate the implementation of domestic policies, controls and procedures throughout the Internal Market.
- Some examples of the importance of harmonizing and leaving less "creative space" for Member States is in the wider and more detailed definitions of PEPs and beneficial owners, for example, Member States will certainly be better prepared to combat money laundering.
What is the recast of the Funds Transfers Regulation?
- In relation to the revision of Regulation of 2015/847/EU this regulation will better regulate fund transfers, through crypto assets, by determining greater traceability of amounts and actors;
- This will also, limit large cash payments, as it will prohibit the selling of goods for more than EUR 10,000 in cash.
What can you tell us about the 6th AML Directive (AMLD 6)?
AML 6 Directive will contain provisions that need to be transposed by Member States in order to maintain the necessary flexibility of the national AML/CFT systems. The proposed Directive will therefore include the rules on the organization and institutional set-up of the future AML/CFT system at national level. AMLD 6 not only takes over existing rules but also includes a number of changes compared to the current legal framework, which are intended to improve the practices of supervisors and FIUs and cooperation between competent authorities.
These changes include the following:
- The competences and tasks of FIUs are clarified. A minimum set of information to which FIUs must have access is defined;
- The powers of the beneficial owners' registers are clarified to ensure they can obtain up-to-date, adequate and accurate information;
- A framework for joint FIU reviews is established and a legal basis for the FIU.net system is provided;
- Clearer rules on FIU feedbacks to obliged entities and vice versa are proposed;
- The competences and tasks of supervisors are clarified;
- A common risk rating tool is introduced to ensure harmonized risk-based supervision.
Finally, what are the expected deadlines for the implementation of the various measures?
- The deadlines will be those of the ordinary legislative procedure. Each proposal is following its own "path". At the beginning of 2023 they would be approved and published, so with the war in Ukraine and the energy crisis, I would say it will be late 2023 or early 2024.
- Single Rulebook - The single rulebook in its complete version, including the necessary technical standards, should enter into force and start being applied by the end of 2025. In order to allow the necessary time for AMLA to become operational and to develop the single rulebook, the new regulatory framework will apply three years after its adoption.
- AMLA will be established in 2023, with the aim of starting most of its activities in 2024, achieving full staffing in 2026 and commencing direct supervision of certain high-risk financial entities from that year. Direct supervision can only start when the harmonized set of rules is completed and applicable. It will therefore reach full resources by the end of 2025;
- 2026 will be the first full calendar year in which the Authority will be fully resourced.
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