The European Central Bank (ECB) believes the European Union’s proposed new anti-money laundering agency needs to have a wider scope of direct supervision and more staff if it is going to be effective.
The Anti-Money Laundering Authority (AMLA) “should not simply add an additional layer” of bureaucracy on top of the existing network of supervisors meant to thwart money laundering and counter the financing of terrorism (CFT), wrote Édouard Fernandez-Bollo, member of the supervisory board of the ECB, in a blog post last week.
The European Commission announced plans to set up the new agency in July after the European Court of Auditors, the EU’s external auditor, published a special report on the weak enforcement of AML rules in the region. The review found EU bodies have limited tools to ensure the application of AML/CFT legislation and the current oversight framework is fragmented and poorly coordinated because some EU governments lack the appetite to enforce the rules.
The idea of setting up an overarching body to coordinate the EU’s AML/CFT supervision has been broadly perceived as a positive one given the bloc has suffered a series of massive money laundering scandals, most notably at Danske Bank.
However, the ECB, in an opinion published Feb. 16, said AMLA—which aims to be operational by 2024—would have “limited scope” from the outset to provide effective direct supervision due to budget constraints. The agency would only directly oversee between 12 and 20 high-risk entities with a presence in multiple EU jurisdictions under its current criteria, the ECB stated.
Such a narrow focus could prevent effective information sharing between agencies as well as alignment over supervision, said the ECB, as priority would be given to the risk profile of a relatively small number of financial institutions at the expense of monitoring the effectiveness of individual EU states’ capabilities to detect money laundering and terrorist financing and punish offenders.
The ECB also raised concerns regarding independence since joint supervisory teams will no longer be coordinated from within the bank but will instead be based in the country where the supervised entity is headquartered.
Legal expert commentary
“Surely the point of setting up a new regulator is to make sure it has more resources, closer cooperation with other financial intelligence units and regulators, and the necessary remit to do the job properly,” said John Binns, partner at law firm BCL Solicitors. “It sounds like this is a regulator that is set to fail.”
Sean Curran, partner at law firm Arnold & Porter, said, “It seems clear AMLA falls short of the far-reaching supervisor that is needed to effectively combat money laundering and terrorist financing across the EU.”
The small number of entities that will be directly supervised, said Curran, “leaves the vast majority to continue under the supervision of their respective member state regulators, retaining the current system of uneven and country-specific implementation of the money laundering directives.”
Some experts warned AMLA’s approach needs to be set correctly from the start or its creation is pointless.
“It’s in no one’s interest for EU legislators, supervisors, and enforcement agencies to be at odds in approach,” said Jayne Newton, director of regulatory expertise at AML compliance vendor Efficient Frontiers International.
More generally, some experts are concerned AMLA’s creation—and remit—will just add more complexity to AML compliance and put EU rules and approach in conflict with global bodies such as the Financial Action Task Force and national supervisors—both in and outside the European Union.
“The ECB’s suggestion of extending the scope of the financial institutions AMLA will be supervising adds complexity to an already ambitious plan and is unlikely to prove practical, at least in AMLA’s initial stages,” said Kathy Gormley, principal solutions engineer at fintech firm Resistant AI.
“The big question remaining is what will happen in the interim, as it is a long wait for AMLA to become operational,” she added.