EU targets crypto, fintech firms in push to tackle money laundering

Europe’s main banking regulator fears that money laundering and terrorist financing risks may be going unchecked because of weak controls and compliance among fintech, regtech, and crypto firms. The European Banking Authority (EBA) also found that the risk-based approaches financial regulators take across the European Union (EU) to police these new entrants are often inconsistent, lack clarity, and are “uneven” in terms of their effectiveness.

The EBA has been issuing opinions on money laundering and terrorist financing risk (ML/TF) every two years since 2017. In its latest opinion in July, the EBA said “the sector’s drive for innovation and growth may be outpacing its ability to manage ML/TF risks.” It added that the “unthinking” use of regtech solutions meant to improve anti-money laundering (AML) compliance — combined with the “spill-over risks” from the increased interconnectedness between traditional financial services providers and the influx of emerging, innovative players such as crypto firms — are also a “particular concern.”

“The EBA’s report makes it clear that the innovative end of financial services still hasn’t struck the right balance between growth and compliance,” said Marit Rødevand, CEO of AML tech company Strise. “The net effect is a landscape where innovation outpaces governance, leaving persistent blind spots in AML/CTF controls.”