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The European Banking Authority has set out an action plan following its report outlining deficiencies in the supervisory networks’ operations. James King reports.

The European Banking Authority (EBA) has emphasised the need for more “proactive engagement” between anti-money laundering and combatting the financing of terrorism (AML/CFT) colleges in the EU. Such colleges are permanent structures designed to facilitate co-operation and knowledge sharing between competent authorities in the context of cross-border financial supervision.

In its second report on the functioning of these supervisory colleges, published on September 1, 2022, the Paris-based EBA identified a number of operational deficiencies linked to their conduct, including examples of poor information exchange and weak organisational standards. Taken together, these shortcomings are limiting the effectiveness of the EU’s existing AML/CFT framework.

Developed in light of the Fifth Anti-Money Laundering Directive (5AMLD) and guidance issued by the European Supervisory Authorities, the colleges represent a relatively new tool in the EU’s efforts to combat money laundering (ML) and terrorist financing (TF) threats. Their genesis stems, in part, from the bloc’s push to improve its cross-border AML/CFT framework following a number of high-profile breaches, including in Scandinavia and the Baltics. 

College challenges

The majority of colleges established so far met for the first time in 2021, meaning many of these entities are, from an organisational standpoint, relatively immature. As the EBA’s latest report makes clear, this has contributed to a range of operational challenges.

there remains the real possibility of further AML/CFT scandals

It was noted that in several colleges, important information – including serious emerging risks such as allegations of large-scale ML – was not being reported in a timely manner. Moreover, some colleges failed to apply a risk-based approach to their operations, meaning high-risk institutions were only subject to annual meetings, which the EBA deemed insufficient. 

“The ultimate goal of effective oversight of cross-border groups within the EU has not yet been achieved, meaning that there remains the real possibility of further AML/CFT scandals involving cross-border European banks and emerging ML/TF risks being able to crystallise, resulting in an increased ML/TF risk exposure to the entire group,” says Simon Lovegrove, global director of financial services knowledge, innovation and product at Norton Rose Fulbright.

Further, a key dimension of the EU’s AML/CFT colleges includes co-operation with supervisors from third countries. The EBA notes that “very little” progress has been made on this front, even by supervisory colleges established in 2020. The risk here is that EU supervisors are not being kept abreast of ML/TF threats stemming from jurisdictions with a higher risk profile. “A key point is that in order to have effective oversight of cross-border groups you need to have the relevant AML/CFT regulators participating in the college and this includes regulators from third countries where relevant,” says Mr Lovegrove.

EBA action plan

In response to these shortcomings, the EBA has drafted six action points for the benefit of lead supervisors in each college:

  • finalising the structural elements of colleges, such as formalising member participation;
  • enhancing discussions during college meetings;
  • fostering co-operation between members and observers from third countries and financial intelligence agencies;
  • applying a risk-based approach to meetings;
  • enhancing joint actions between supervisors in different member states; and
  • enhancing supervisory convergence in colleges. 

In addition, the EBA has pledged to ramp up its oversight of AML/CFT colleges by engaging in “active monitoring” of 15 selected colleges between 2022 and 2024. “This will involve the EBA attending all meetings of these colleges and sharing information from the EuReCA database on material weaknesses received from various competent authorities in respect of the cross-border financial institution and the measures they have taken to address those weaknesses,” says Mr Lovegrove. 

The EBA did not respond to requests for comment. Nevertheless, the institution’s monitoring of AML/CFT colleges is expected to go some way in addressing the shortcomings identified in its latest report.

Moreover, the EU’s wider AML/CFT framework should receive a boost in the medium term as a new bloc-wide anti-money laundering authority (AMLA) is expected to be launched. On June 29, 2022, the Council of the European Union agreed a partial position on the proposal around AMLA’s development. This includes giving the new entity direct supervisory authority over certain credit and financial institutions. AMLA is expected to contribute to the standardisation of efforts to tackle ML/TF risks across the bloc.

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