Strengthening the EU's defenses against money laundering and terrorism financing

Introduction

Money laundering and the financing of terrorism present persistent challenges for the European Union (EU), posing serious threats to its economy, financial system, and the security of its citizens.

The EU has long been committed to combating these illicit activities, with the first anti-money laundering directive adopted in 1991. Over the years, the directive has undergone multiple reforms, with the aim to address the continuously evolving financial crime risks, threats and challenges and close existing gaps and loopholes in the anti-money laundering and countering terrorist financing (AML/CTF) framework.

In a significant move, on July 20, 2021, the European Commission put forward a comprehensive legislative package aimed at further strengthening the EU's rules on AML/CFT. The creation of a new EU AML Authority (AMLA) is a centerpiece of this legislative package.

Role of AMLA

AML/CFT supervision in the EU currently falls within the competence of the member states. However, the quality and effectiveness of the supervision framework differ greatly between member states, notably due to differences in practices and allocated resources.

The creation of AMLA aims to address these shortcomings and is geared towards transforming and improving AML/CFT supervision in the EU as well as enhancing cooperation among Financial Intelligence Units (FIUs). AMLA will act as a central authority, undertaking some direct supervision itself, while coordinating and setting up high standards for national supervisors – with the aim to promote harmonised application of EU AML/CTF rules.

AMLA’s tasks and responsibilities will notably encompass:

• Development of regulatory technical standards (RTS) and implementing technical standards (ITS), as well as issuance of guidelines and recommendations addressed to obliged entities, national supervisors or FIUs with a view to ensuring a correct and consistent application of EU AML/CTF rules and to promoting consistent and effective supervisory and FIU-related practices.
• Establishment of an integrated AML/CFT supervisory system (composed of AMLA and national supervisors across the EU) based on:
  • Cooperation and mutual assistance between AMLA and national supervisory authorities;
  • Development by AMLA, in cooperation with national supervisory authorities, of a harmonised AML/CFT supervisory methodology outlining the risk-based approach to supervision of obliged entities in the EU - with a view to promoting the application of harmonised supervisory practices and standards where supervision remains at national level;
  • Establishment and maintenance of a central AML/CFT database.
• Direct and indirect supervisory powers over obliged entities in the financial sector, including crypto-asset service providers.
  • Direct supervision over “selected obliged entities”: A limited number of the riskiest entities will be subject to direct supervision by AMLA. These will include :
    • (a) Cross-border credit and financial institutions deemed to be exposed to a high ML/TF risk, with operation in several member states. These credit and financial institutions (or groups of such institutions) will be selected on a periodic basis (every three years), as a result of an assessment process based on a set of objective criteria related to their ML/TF risk profile as well as their cross-border presence and activities. In the first selection process, AMLA will have authority to supervise up to 40 entities or groups.
    • (b) In exceptional cases, AMLA will also be able to take over the direct supervision of a particular entity (in relation to compliance failures or heightened risk exposure) – either at the request of a financial supervisor or on its own initiative.
• Direct supervision will be exercised through joint supervisory teams (JSTs). These teams will be led and coordinated by an AMLA staff member and will be composed of staff members from both AMLA and relevant national supervisory authorities.
  
  AMLA will be entrusted with the power to impose administrative measures, pecuniary sanctions, and periodic penalty payments.
  • Indirect supervision over non-selected obliged entities: The supervision of other obliged entities will remain primarily at national level - with the national supervisory authorities maintaining full responsibility and accountability for the direct supervision of these entities. AMLA will however have indirect supervisory powers on these entities, notably through the conduct of periodic assessments of the activities of the financial supervisors, including their tools and resources, to ensure that supervisory actions taken at national level are consistent and of a high standard across the EU (i.e. assessment of the state of convergence of supervisory practices). As a result of their assessment, AMLA will produce a report setting out its findings and any follow-up measures to be taken by the financial supervisors. AMLA may also help settle disagreements between financial supervisors in cross-border situations.

• Establishment of a FIUs support and cooperation mechanism, notably by coordinating and supporting the conduct of joint analyses by FIUs of cross-border suspicious transactions; by promoting common approaches, methods and best practices; by developing and making tools and services available to FIUs to enhance their analysis capabilities; by conducting peer reviews of the activities of FIUs; by helping mediate between FIUs in case of disagreements; and by hosting the central information exchange platform (FIU.net).

^{Sources :}

^{Note on the confirmation of the final compromise texts (link)}

^{Final compromise text of the regulation establishing AMLA (link)}

^{Council of the EU, Press release, 22 February 2024, “Frankfurt to host the EU’s new anti-money laundering authority (AMLA)” (link)}

^{Council of the EU, Press release, 13 December 2023, “Anti-money laundering: Council and Parliament agree to create new authority” (link)}

^{Council of the EU, Press release, 18 January 2024, “Anti-money laundering: Council and Parliament strike deal on stricter rules” (link)}

^{Council of the EU, “Fight against money laundering and terrorist financing in the EU” (link)}

^{Council of the EU, 18 December 2023, “Anti-money laundering: Council and Parliament agree on procedure to select seat for new authority” (link)}

 ^{European Commission, “Selection of the seat of the Anti-Money Laundering/Countering the Financing of Terrorism Authority (AMLA) (link)}

^{European Commission, “Anti-money laundering and countering the financing of terrorism legislative package” (link)}

^{European Commission, “Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA)” (link)}

^{European Commission, 13 December 2023, “Commission welcomes political agreement on the Regulation to establish the new Anti-Money Laundering Authority (AMLA)” (link)}

^{European Commission, 22 February 2024, “Commission welcomes the selection of Frankfurt as the seat for the Authority for Anti-Money Laundering and Countering the Financing of Terrorism” (link)}

^{European Commission, 20 July 2021, “Beating financial crime: Commission overhauls anti-money laundering and countering the financing of terrorism rules” (link)}

^{European Commission, 16 September 2022, “Opening speech by Commissioner McGuinness at European Court of Auditors high-level seminar, 'New EU AML-CTF supervision model: expectations vs feasibility'” (link)}