Bold ambition: EU sets out new approach to AML and CFT

May 2024 | FEATURE | FRAUD & CORRUPTION

Financier Worldwide Magazine

May 2024 Issue

In recent decades, the European Union (EU) has dedicated significant resources to combatting illicit financial activities and terrorist financing. In that spirit, the Council of the European Union and the European Parliament announced on 17 January 2024 that a political agreement had been reached on a new regulation setting forth a single anti-money laundering (AML) and countering the financing of terrorism (CFT) rulebook (AMLR) and a sixth AML Directive (AMLD6).

The announcement came in the wake of the 13 December 2023 declaration of a political agreement on a regulation establishing the Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA).

These agreements advance the protection of EU citizens’ rights and solidify the integrity of the EU’s financial system. The comprehensive set of measures mark a strategic shift, with the new AML package consolidating all regulations related to the private sector into a new regulation.

Rules and regulations

The AMLR resolves some of the issues surrounding the current AML framework predominantly established under the fifth AML Directive. Directives set out minimum rules which member states are required to implement through national legislation. However, adoption of the AMLR will provide a ‘single rulebook’, with detailed substantive requirements directly applicable to member states throughout the bloc.

EU-wide rules under the AMLR will cover the scope of obliged entities, the internal policies, controls and procedures of obliged entities, customer due diligence, beneficial ownership transparency, reporting obligations, record retention, and measures to mitigate risks arising from anonymous instruments. The AMLR will apply three years after its entry into force.

“The EU is ushering in a new, more robust, harmonised and effective regulatory landscape in its ongoing fight against financial crime.”

Hand in hand with the new rulebook, AMLD6 will provide AML-related rules that could not adequately be included in a regulation as they require national transposition. Accordingly, AMLD6 is primarily concerned with the institutional AML framework. It contains provisions relating to supranational and national risk assessments, statistics, registers of beneficial owners, bank accounts and real estate, financial intelligence units (FIUs), AML supervision, sanctions, whistleblowers, and cooperation for AML purposes.

Introducing the AMLA

First proposed by the European Commission in its AML Reform Package in 2021, as part of a larger package on combatting money-laundering and terrorist financing, the AMLA is intended to supervise the EU’s new rulebook covering the flow of dirty money. The authority would be charged with directly supervising the riskiest financial entities (defined as those with operations in at least six member states), and in any event, supervising one per member state. It will also have strong powers to step in following supervisory failures and to take over supervisory tasks.

The AMLA is intended to act as a central hub helping to coordinate the actions of supervisors across member states and ensure convergence of supervisory practices. Based on a proposal from the European Parliament, the AMLA will also be tasked with mediating and settling disputes between national authorities.

Furthermore, the AMLA will offer support to FIUs in analysing suspicious transactions and detecting money laundering cases, notably by supporting joint analysis and managing FIU.net, the IT system used for FIU information sharing.

The AMLA will be based in Frankfurt and begin operations in mid-2025. At this point, it will identify the obliged entities subject to direct supervision, and begin issuing guidance and recommendations.

Implementation

Shortly, the texts of the AMLR, AMLD6 and AMLA regulation will be completed, prior to being formally approved by the European Council and the European Parliament. Once approval has been granted, members states will need to implement AMLD6 provisions into national law within three years.

Through these steps, the EU is ushering in a new, more robust, harmonised and effective regulatory landscape in its ongoing fight against financial crime. The EU’s bold new approach will help maintain the integrity of many organisations’ financial operations and foster greater cooperation throughout the European business landscape.

These measures not only broaden the scope of obligations for entities but also enhance due diligence, transparency and cooperation across borders. They reinforce the bloc’s commitment to addressing emerging financial risks and strengthening protection against malfeasance.

It is vital that affected organisations move to address the EU’s newly expanded AML framework. If companies are to avoid the imposition of sanctions and measures, they must act quickly.

Richard Summerfield