The European Banking Authority is thinking of setting up an EU-wide database for anti-money-laundering purposes. It wants interested parties to comment on 'weaknesses' - presumably in banks' defences against money launderers - along with the type of information that the database ought to collect and how the EU should analyse and disseminate it.
The EBA, once based in London but now based in Paris, has the job of leading the EU's fight against non-governmental money laundering. The idea of a central AML database is based on a so-called 'mandate' conferred on it by article 9(1 and 3) of the EBA Regulation. It is obliged to develop two regulatory technical standards or RTS. The EBA has drafted its suggestions for these in a single proposal, to which it refers as an instrument. Finalisation is not far off.
The EBA's definition of a weakness covers three notions: a 'breach,' a 'potential breach' and an 'ineffective application.' A 'breach' is, according to article 3, any violation of an AML requirement that a national regulator has noticed a firm committing. A 'potential breach' is a situation in which either the competent authority has reasonable grounds to suspect that a breach has taken place or that it has been attempted. 'Ineffective application' is a firm's attempt to obey an AML rule in a way that a regulator deems inappropriate and likely to lead to a breach.
The EBA is only interested in requiring firms to report 'material' weaknesses to it. Article 5 of its draft rule, as it stands, tries to explain 'materiality' in very vague terms.
"A weakness shall be considered material where it reveals or could lead to significant failures in the compliance of a firm, or of the group...with its AML requirements. For the materiality of a weakness to be determined, all the following criteria shall be assessed."
The list of factors is as follows.
- The weakness occurs frequently.
- It has persisted over a significant period of time.
- It is serious or egregious.
- The decision-making bodies of the firm either appear to have a knowledge of the weakness and decided not to remediate it or they adopted decisions or deliberations directed at generating the weakness.
- The weakness increases the money-laundering risk exposure (in EU parlance, this means no more than the risk that money laundering will take place) of the firm (or that associated - by an unknown person or persons - with the firm) or of the group.
- The weakness has or could have a significant effect on the integrity and security of the financial system of an EU country.
- It has or could have a significant effect on the viability of the firm or group or even the financial stability of an EU country.
Comments ought to be in by 17 June.