The European Union's proposal for a fourth directive to govern money laundering controls is unlike any of its predecessors and promises to be nothing like the directive which, according to its text, will supersede it in a few years.

Data protection and record-keeping

The cross-over between a bank's duty to protect customers' data and to “inform” on its clients is as blurred as ever and forms the subject for another sore point. This time the bankers are complaining that the new rule in Article 39 states that “the maximum retention period following either the carrying-out of the transactions or the end of the business relationship, whichever period ends first, shall not exceed ten years.” In this scenario the private bank is being asked to destroy the data after ten years. The EBF argues that this cannot be in the interests of the customer or his heirs, who may need information on the account in question in inheritance proceedings which might drag on for years. The same goes for insolvency proceedings. In going on to argue that the data might be needed in criminal investigations, however, the EBF gives off the distinct impression that customer service is not the real reason for its objections to Article 39.

Rogue's gallery

“Reliance,” to give it its UK term, is a major issue in the money-laundering world. It refers, of course, to the extent to which a bank can rely on other banks outside its jurisdiction or the reach of its regulators for the identification and verification of an applicant for business's identity and other things. Article 25(1) limits extra-EU “third parties” who are allowed to provide this information to entities from countries where “due diligence” is “equivalent” to the EU's. Article 25(2) places the burden of deciding which jurisdiction is “equivalent” squarely on the shoulders of each national government, ringed around tightly with the need to obtain permission from a battery of EU organs.

This heralds the end of the EU's scandalous experiment with anti-money-laundering “white-lists.” In 2008, to gasps of astonishment, national regulators in many if not all EU countries announced that they were going to tolerate “simplified due diligence” (a lower standard of background-checking) for entities that belonged to about a dozen selected countries. This list included Aruba, Curacao, Mexico, Russia and other territories that have long been famous for their opacity (and, especially in the case of Mexico, general lawlessness) rather than for good regulation and due diligence. This embarrassment is likely to be over in the next year or two. In the preamble to the proposal, the EU states: “Equivalence of third country regimes: remove the "white list" process.” This terse reference is the only mention it makes of the débâcle. In a sense, the EU need do nothing to close the loophole; it originated from pressure that the EU exerted on member-states behind the scenes and not from any EU law.

A string of deadlines

One of the stars of the new proposal is the European Banking Authority, which the EU believes is destined to take the reigns of private bank regulation out of the hands of national regulators one day. The document contains a slew of deadlines by which the EBA must approve this-and-that. Article 6 calls on it to club together with other centralised EU regulators (the European Insurance and Occupational Pensions Authority or EIOPA and the European Securities and Markets Authority or ESMA) to float an “opinion” about money-laundering and terrorist-financing risks within two years of the fourth directive coming into force.

Article 15 calls on that body to evolve guidelines within the same time-frame for the risk factors that should govern decisions about when and where “simplified due diligence” should apply. Article 16 asks it to issue other guidelines in the same time-frame, this time for EDD. Article 42 contains another crop of deadlines (which fall on the same date) for EU standardisation in which the EBA is to participate. The EU's drive to centralise financial regulation is only too obvious in this draft.

The EBA, however, is nowhere near a state of readiness for such lofty pre-eminence. The UK's Financial Conduct Authority, according to its latest business plan, is going to spend around £445 million ($674 million) in 2013-14, with fees payable of £391 million. Its total headcount will be 2,848. The EBA's budget for this year is €30 million or £25.7 million, of which €15 million has been pilfered from the “fees” that national regulators charge their flock, and its headcount by Christmas is expected to be 93. It will therefore be some time before the EBA is able to do much more than broadcast patronising messages to the national regulators that it hopes one day to supplant.