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  • THE SUPERVISION BLOG

For a fully fledged European anti-money laundering authority

Blog post by Edouard Fernandez-Bollo, Member of the Supervisory Board of the ECB

Frankfurt am Main, 21 February 2022

Some things matter to you, even if you are not directly responsible for them. At the European Central Bank (ECB) it is not part of our tasks to supervise banks’ compliance with rules to prevent money laundering and terrorist financing. Yet money laundering and terrorist financing risks pose a danger to the sustainability of banks and can seriously damage people’s trust in the banking sector. This is why we really need a strong European anti-money laundering authority. It would also help us as prudential supervisors, because banks that struggle with issues in this area often suffer from structural deficiencies in their internal controls and governance arrangements, which do fall within the scope of ECB Banking Supervision.

European legislators have taken various steps in recent years to strengthen the link between anti-money laundering/countering the financing of terrorism (AML/CFT) and prudential issues. For example, prudential supervisors can now use the information held by AML/CFT authorities in authorisation procedures, when taking decisions about the suitability of management bodies, or as part of ongoing supervision. Similarly, AML/CFT authorities use the information shared by prudential supervisors.

We warmly welcome the proposal from the European Commission published last July to set up an EU AML Authority (AMLA). This will help to ensure that AML/CFT rules are applied more effectively and consistently across countries. The creation of this new authority matters to us, as banking supervisors, since AMLA and the ECB will need to cooperate in several areas to ensure efficient and effective supervision. Benefiting from the experience gained in building European banking supervision in the last decade, we have identified three main areas which in our view are key to ensuring the authority at the centre of this new EU-wide supervisory authority is well designed, as reflected in the ECB Opinion published today[1].

A wide scope of direct supervision

A strong and credible European anti-money laundering authority should directly supervise a sufficiently large number of entities from the outset. And this pool should include entities headquartered in each of the Member States to ensure that supervisory practices are aligned.

Our experience of building European banking supervision taught us that adopting significance criteria to include banks in all participating countries is essential to create a common approach to prudential supervision. This ensures that every national competent authority makes a substantial contribution to the ECB’s direct supervisory tasks. It also ensures that EU-level prudential supervision is present in each country, at consolidated and individual level. With that, the ECB has gained a thorough understanding of the banking sector across the entire banking union and has identified good practices across the EU.

However, the assessment and selection criteria for entities to be subject to AMLA supervision as currently proposed might not produce such a meaningful pool of entities. To be able to do so, the criteria should be enhanced to guarantee EU-wide coverage. Based on our experience, more objective criteria based on risk factors, such as certain aspects of cross-border activities, would be preferable. These criteria should be as objective as possible, not disclosing risks scores that might stigmatise the selected entities.

A central data hub

The new approach to supervising AML/CFT risks should improve cooperation among all involved. The new authority should not simply add an additional layer on top of the existing AML/CFT supervisors. On the contrary, it should play a central role in strengthening the cooperation and facilitating information flows between all regulatory and supervisory authorities involved: AML/CFT authorities, prudential supervisors, financial intelligence units, European Supervisory Authorities and others.

More specifically, AMLA needs to ensure effective cooperation and information exchange between all financial AML/CFT supervisors and the relevant non-AML/CFT authorities. This must involve making an efficient use of the existing cooperation channels and identifying opportunities for simplification when needed. In this sense, the future AMLA database should be a central data hub designed to facilitate the sharing of information among all the authorities involved, including prudential supervisors, while minimising the reporting burden of the existing multiple channels that at times may cause duplication of efforts.

AMLA joint supervisory teams

The Commission’s proposal is for AMLA to use joint supervisory teams (JSTs). This is a concept at the core of how the ECB carries out prudential supervision. While AML/CFT supervision may of course require a different set-up to that of prudential supervision, we noted a few important differences between the proposal on how to set up JSTs at AMLA and our own JSTs.

Under the current proposal, AMLA’s JSTs would consist of staff from both AMLA and national authorities, just as is the case in ECB Banking Supervision. However, AMLA staff would make up a much smaller part of the JST compared with the JSTs at the ECB. In our experience, enough EU-level staff need to be allocated to the JSTs to achieve effective and consistent supervision.

JSTs would be coordinated by AMLA staff, but they would be based in the country of the supervised entity. In European banking supervision, JST coordinators are ECB staff located at the ECB. This is key to fostering an exchange of views among coordinators on the application of methodologies and the effectiveness of measures. At the ECB, coordinators do not come from the country where the supervised bank has its headquarters. And we appoint them for a period of three to five years, rotating on a regular basis. In our experience, all of this has been essential to create a common European supervisory culture.

Conclusion

The creation of AMLA is an opportunity for the EU to further harmonise its AML/CFT framework and foster supervisory collaboration, thereby strengthening the prevention of money laundering and terrorist financing risks. Fighting money laundering is not one of the ECB’s direct tasks. But we care about this topic and stand ready to enhance our cooperation to contribute to the success of the new European framework. We have already gone through the challenges of creating a European supervisor from scratch. It has worked well, resulting in a true European banking supervision culture. We have learned many lessons along the way. Let’s keep building on them.

  1. The ECB also published an opinion related to the proposals for a sixth AML Directive (AMLD6) and an AML/CFT Regulation (AMLR1).
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