Anti-money laundering

EU legislators have taken a number of steps to clarify and strengthen the important link between anti-money laundering/countering the financing of terrorism (AML/CFT) and prudential issues and to complement the Union’s existing legal framework. These steps include amendments to the Capital Requirements Directive (CRD V), which further clarify the link between prudential supervision and AML/CFT supervision and require prudential supervisors to act on AML/CFT information (see the Opinion of the European Banking Authority on communications to supervised entities regarding money laundering and terrorist financing risks in prudential supervision for details).

In addition, the Council of the European Union adopted an Anti-Money Laundering Action Plan. This Action Plan sets out a number of objectives, with deliverables and timelines, and highlights the need to improve the effectiveness of AML/CFT supervision. While supervision of financial institutions’ compliance with AML/CFT requirements remains an exclusive competence of the national AML/CFT authorities, the Action Plan notes that a better exchange of information and collaboration between those authorities and prudential supervisors, especially across borders, is vital in order to achieve effective supervision.

In this context, ECB Banking Supervision, in the exercise of its prudential supervisory tasks, shall act upon money laundering and terrorist financing (ML/TF) concerns that may have an impact on an institution’s safety and soundness. Concerns about money laundering or terrorist financing – especially concerns stemming from AML/CFT authorities’ assessments of ML/TF risks associated with individual institutions – will be considered in the prudential supervisory process and in particular, but not solely, as follows:

1. at authorisation, the extent to which the applicant’s business model, the proposed risk management systems and controls, and the suitability of its shareholders, members, management body, senior management and key function holders give rise to ML/TF risks
2. as part of ongoing supervision, in the assessment of acquisitions of qualifying holdings and in the fit and proper assessment of the management body
3. in the context of the supervisory review and evaluation process (SREP), as part of the review of risks, business models, credit operations, governance and internal risk management
4. in the context of taking any prudential administrative measures, and particularly, imposing penalties or proceeding to a withdrawal of authorisation process, thus ensuring that AML/CFT-related weaknesses with a prudential impact are taken into account in applying prudential supervisory measures and powers to alleviate prudential concerns

Against this background, the ongoing need for closer cooperation and increased information exchange between prudential supervisors and AML/CFT competent authorities at home and abroad is important. This is because, as set out above, prudential supervisors will use the information held by AML/CFT authorities in their supervisory processes, and AML/CFT supervisors will use the information from prudential supervisors to inform their approach to the AML/CFT supervision of institutions.

Increased regulatory and supervisory focus alone will not be enough to successfully fight money laundering and terrorist financing in the financial sector. In this regard, institutions play the leading role. Institutions are the first who need to ensure that they are not used for these purposes and that ALM/CFT issues attract proper management attention. In this context, institutions have to ensure, inter alia, that members of the management body and senior management are, at all times, of sufficiently good repute and possess sufficient knowledge, skills and experience to perform their duties. Similarly, institutions are responsible for ensuring that their governance and risk management are adequate and enable them to identify, assess and manage the risks to which they are (or may be) exposed, including ML/TF risks.

Supervision newsletter articles on AML

May 2019 - Gearing up to fight money laundering
May 2018 - The ECB and anti-money laundering: what we can and cannot do