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European AML super-regulator comes one step closer

Chris Hamblin, Editor, London, 2 December 2020

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A recent meeting of the European Union's finance ministers has given its blessing to plans for a unified direct anti-money-laundering regulator for reporting firms all over the EU. The aim is not, however, to abolish the national regulators.

The ministers welcomed a plan drawn up by Eurocrats in May that proposed the advent of an single EU AML rulebook, direct EU-wide AML supervision and a mechanism by which financial intelligence units or FIUs might co-operate and support each other while being co-ordinated from a single point - presumably an office in Brussels. The May paper also contained a methodology, published on the same day, by which people might identify highly risky non-EU countries in a way that might please the Financial Action Task Force, the world's AML standard setter. The Eurocrats also promoted (in the EU's phrase) "full transparency with member states, [and] enhanced engagement with - as well as the implementation of - a policy towards third countries," all of which also found favour with the ministers. One body of the EU will present the others with legislative proposals on the subject early in the New Year.

In an interesting passage in their pronouncement, the ministers urge the European Commission (the nearest thing that the EU has to an executive branch) and the European Data Protection Board to "provide clarification on" how to reconcile the EU's AML rules with the applicable data protection laws, notably with the General Data Protection Regulation, in order to "provide more clarity on" the data that obliged entities (the EU's phrase for reporting entities) can share, as well as on the data that obliged entities can share with the police. The ministers also ask these bodies to resolve inconsistencies between various provisions of data-protection law and the prohibition against tipping off suspects, which has been part of every EU country's AML law since the first Money Laundering Directive came into effect in the early 1990s.

According to the principle of subsidiarity, the EU may only make laws if independent action by its member-states is not enough to achieve something without equal action by other members. This, however, is something of a paper tiger. The ministers pay passing lip-service to it in their paper by stating (somewhat unintelligibly) that "the scope of the EU AML/CFT supervisor should be tailored to its added value in relation to national AML/CFT supervisors."

The "competencies" that the EU regulator ought to have are as follows:

  • responsibility for supervising a selected number of obliged entities that have high inherent ML/TF risk and which are chosen on the basis of specified risk criteria;
  • the power to step in ad hoc and take over supervision from a national supervisor in clearly defined and exceptional situations on the basis of objective and transparent criteria, in cases where the national supervisor is unable to enforce compliance or cannot ensure adequate supervision; with
  • both of these powers to be "triggered on a purely risk-sensitive basis;" and
  • all powers to apply to credit institutions, payment institutions, bureaux de change, e-money institutions, virtual asset service providers covered by the FATF's 40 Recommendations, and others.

When the EU super-regulator steps in (see above), the ministers want it to have the right to conduct general inspections – asking for information, examining records and conducting on-site and off-site supervision, forcing firms to do various things and imposing administrative sanctions on them if it pleases. It should decide when to step in by itself.

National governments, for their part, ought to allow their regulators to ask the EU regulator to support them or to intervene against the entities that they regulate.

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