Annexes to COM(2018)645 - Strengthening the Union framework for prudential and anti-money laundering supervision for financial institutions

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dossier COM(2018)645 - Strengthening the Union framework for prudential and anti-money laundering supervision for financial institutions.
document COM(2018)645 EN
date September 12, 2018
agreements on cooperation and exchange of information to the European Banking Authority. The European Banking Authority could also be entrusted with an explicit mandate to specify the modalities of cooperation and information exchange, particularly in relation to cross-border groups and in the context of identifying breaches of anti-money laundering rules.


3.2.2 Strengthening supervisory convergence – a reinforced proposal on the European Supervisory Authorities' Review

Under the current legislative framework, the European Supervisory Authorities already contribute to the monitoring of anti-money laundering risks and have a series of powers that they are encouraged to use fully in order to step-up their contribution to the fight against money laundering and terrorist financing. However, bolder steps need to be taken to ensure that anti-money laundering risks are systematically, effectively and consistently incorporated into supervisory strategies and practices of all relevant authorities. The European Banking Authority will play a key role in achieving this.

The Commission’s proposal of September 2017 revising the European Supervisory Authorities' founding regulations intends to strengthen the capacity of the European Supervisory Authorities to ensure convergent and effective financial supervision by enhancing their mandates, introducing a more independent and effective governance system and giving the European Supervisory Authorities a more adequate funding mechanism to fulfil their tasks. The Commission encourages the co-legislators to reach a quick agreement on this proposal.

However, when it comes to the role of these Authorities in the area of anti-money laundering, further changes are necessary to achieve a more effective system. In order to ensure high quality anti-money laundering supervision and effective coordination among different authorities across all Member States, anti-money laundering responsibilities across the financial sector must be entrusted specifically to one of the European Supervisory Authorities, namely the European Banking Authority. Its mandate must be more explicit and comprehensive, accompanied by a clear set of tasks, corresponding powers and adequate resources. Therefore, the Commission has today amended its existing proposal amending the European Supervisory Authorities’ founding regulations, with the objective of reinforcing the anti-money laundering mandate in four ways.

I.Optimising the use of expertise and resources dedicated to anti-money laundering related tasks

It is proposed that the resources and expertise currently scattered across the three European Supervisory Authorities and the Joint Committee’s dedicated subcommittee be centralised at the European Banking Authority and given a more robust support structure. Concentration at the European Banking Authority is appropriate, as in the banking sector money laundering and terrorist financing risks are most likely to have systemic impact.

Involvement and an appropriate level of representation of all national anti-money laundering supervisors responsible for all financial sector entities concerned should be ensured for anti-money laundering-related regulatory tasks, such as the drafting of binding technical standards, guidelines and recommendations. For these purposes, the current Joint Committee's Anti-Money Laundering Committee should be transformed into a Standing Committee of the European Banking Authority. It should be composed of the heads of all national anti-money laundering supervisory authorities, similar to the Resolution Committee established pursuant to Article 127 of the Banking Recovery and Resolution Directive. 18  

II.Clarifying the scope and content of the anti-money laundering related tasks

In light of the horizontal nature of anti-money laundering concerns, it is proposed that the European Banking Authority's anti-money laundering related tasks be specified in more detail in the founding regulation, as is already the case with respect to tasks related to consumer protection. 19 The European Banking Authority will get specific competences in the area of anti-money laundering, whereas the Joint Committee will deal with cross-sectoral aspects related to anti-money laundering tasks, which require the expertise of the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority. The European Banking Authority's centralised anti-money laundering related tasks would cover those obliged entities referred to in the Anti-Money Laundering Directive that also fall within the scope of the Regulations on the European Supervisory Authorities, as well as the supervisory authorities of such institutions.


III.Reinforcing the tools for carrying out the anti-money laundering related tasks 


For the specific anti-money laundering related tasks, a series of measures are proposed in order to ensure that anti-money laundering work is more efficient, effective and prioritised:


·Building on the independent reviews contained in the original Commission proposal, the Commission considers that the European Banking Authority should carry out periodic independent reviews on anti-money laundering issues, with expert input from the proposed Anti-Money Laundering Standing Committee. The specific format and scope of each individual review could be tailored to address any needs or issues in anti-money laundering supervision at a particular point in time or in a forward-looking way 20 ;


·Where a review reveals serious shortcomings in the identification, assessment or addressing of risks of money-laundering and terrorism financing, the Authority should inform the European Parliament, the Council and the Commission;


·For the purposes of fulfilling its anti-money laundering related tasks, the European Banking Authority should become the data-hub on anti-money laundering supervision in the Union, and therefore should be able to collect all the necessary information and data pertaining to anti-money laundering issues, from anti-money laundering as well as prudential supervisory authorities, which should include confidential data relating to specific money laundering cases, as well as any money laundering-related findings in individual fit and proper assessments;


·The European Banking Authority should also regularly carry out a risk assessment exercise to test strategies and resources in the context of the most important emerging money laundering risks, and should reflect these findings in the opinion that it is obliged to deliver for the purpose of the bi-annual supranational risk assessment, carried out by the Commission pursuant to the Anti-Money Laundering Directive;


·Finally, the capacity of the European Banking Authority to enforce anti-money laundering rules should be strengthened, including in the context of its powers related to breaches of Union law or binding mediation. Therefore, it should where necessary be able to request national supervisors to investigate cases where financial sector operators are alleged to have breached their obligations under the Anti-Money Laundering Directive. Moreover, where the Authority takes decisions under the existing procedures on breaches of law or binding mediation, and a national authority does not comply with these decisions, the Authority should under certain conditions be able to adopt decisions directly addressed to financial sector operators, requiring them to comply with their legal obligations not only under directly applicable Union law, but also as provided in national legislation transposing Directives or exercising options granted to Member States in Union law.


These tools would allow a comprehensive and up-to-date analysis of the strengths and weaknesses in supervision, as well as providing a view on emerging money-laundering threats and trends that may have cross-border effects.


IV.Strengthening the coordination role of the European Banking Authority for international anti-money laundering related issues 

Finally, it is proposed to endow the European Banking Authority with a clear responsibility as regards the coordination of material anti-money laundering-related supervisory issues at international level. The European Banking Authority should in particular take a leading role in coordinating cooperation with relevant third-country authorities in cases entailing a cross-border dimension.

3.2.Short-term non-legislative measures

To address immediately some of the practical hurdles hampering appropriate cooperation, pro-active concerted measures by the competent authorities are warranted. The European Supervisory Authorities, as well as the European Central Bank acting in its supervisory capacity, should use their existing powers to enhance the current implementation of the framework.

Actions by the European Supervisory Authorities

Measures should first focus on the anti-money laundering related aspects in the banking sector, given the particular relevance of anti-money laundering for banks, and the potential systemic implications for the European banking sector. The European Banking Authority is encouraged to assume a leading role, to initiate the measures described below, to share its expertise and to coordinate work with the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority.

·The European Banking Authority is invited to undertake first a stock-taking exercise allowing an overall identification of the various anti-money laundering issues relevant from a prudential perspective, as well as a mapping at Union level of existing practices of factoring anti-money laundering aspects into prudential supervision. The stock-taking should also outline the characteristics of cooperation arrangements between prudential and anti-money laundering authorities and bodies, both intra-Member State and cross-border. This should lead to identifying best supervisory practices, as well as potential deficiencies.


·On the basis of the stock-taking exercise, the European Banking Authority is invited to adopt common guidance supporting the Union's prudential supervisors in appropriately and consistently accounting for money-laundering and terrorist financing risks in their activities. In particular, the Authority should use existing mandates for issuing guidelines and draft technical standards to specify how prudential supervisors should integrate anti-money laundering aspects into their various tools. 21 The guidance should emphasise ways of improving cooperation throughout all phases of the supervisory process.


·The European Banking Authority is also invited to analyse the impact of the different approaches behind the distribution of competences in prudential supervision (i.e. home country control, consolidated supervision) and anti-money laundering supervision (i.e. host country control, information exchange). This should guide prudential supervisors of cross-border groups in identifying the relevant counterparties in the anti-money laundering framework.


·On the anti-money laundering side, the European Banking Authority, in coordination with the other two European Supervisory Authorities where relevant, is invited to closely monitor the implementation of the Risk-Based Supervision Joint Guidelines, to follow-up on the recommendations made in the Commission's 2017 Supranational Risk Assessment 22 . The European Supervisory Authorities should highlight, in the forthcoming joint opinion on money laundering and terrorism financing risks in the Union, 23 financial sector strategic aspects of anti-money laundering and the related findings, including possible ways to address identified shortcomings, if any.


·Moreover, the European Supervisory Authorities are invited to expand the Risk-Based Supervision Joint Guidelines to specify common procedures and methodologies for the supervision and assessment by anti-money laundering authorities of financial institutions' compliance with anti-money laundering rules. The European Supervisory Authorities are also encouraged to issue substantial guidelines covering in detail the cooperation and information exchanges between anti-money laundering and prudential supervisors, and promoting the establishment of anti-money laundering colleges.


·The European Banking Authority should play a central role in ensuring compliance with the anti-money laundering framework. It should undertake stringent reviews of the activities of anti-money laundering authorities, accompanied by concrete recommendations to these authorities and an effective follow-up mechanism. In this regard, the Commission fully supports the European Banking Authority's recent initiatives on anti-money laundering reviews, as well as its follow-up to the Commission’s requests on investigations of breaches of Union law in the field of anti-money laundering and encourages continuous use of these tools by the European Banking Authority for identifying unwarranted supervisory practices.


·With regard to international aspects of cooperation in relation to anti-money laundering issues, the Commission supports a more pro-active role for the European Banking Authority and the establishment of contacts with third country authorities, in line with its current mandate. It is invited to devise a cooperation strategy with relevant third country authorities, to ensure that the Union interests in the field of anti-money laundering are adequately and consistently taken into account by such authorities.

Action by the European Central Bank in its supervisory capacity

Until now, the European Central Bank has had to rely mainly on the willingness of national anti-money laundering supervisors. It is now a priority that the European Central Bank concludes with anti-money laundering supervisors a multilateral memorandum of understanding on exchange of information by 10 January 2019, as required by the fifth Anti-Money Laundering Directive.

It is of great importance that all prudential supervisors clarify the practical arrangements that concern incorporation of anti-money laundering related aspects into prudential supervision, taking into account the European Banking Authority’s Guidelines. Within the Single Supervisory Mechanism, there is an additional need to clarify the division of tasks between the European Central Bank and the national competent authorities, which assist the European Central Bank in carrying out its prudential tasks in relation to both significant and less significant institutions.

3.3.Conclusions and longer term outlook

Deficiencies in the current system can only be addressed if all stakeholders act swiftly and in close concertation. Political commitment from all sides and at all levels will be essential if the strategy set out above is to be successfully implemented.

The Commission therefore calls on the European Parliament and Council to endorse the actions set out in this Communication and to adopt the relevant legislative proposals by early 2019 at the latest, thereby taking a decisive step towards a more resilient system.

While national anti-money laundering supervision will remain central in the fight against money-laundering and terrorist financing, there is a need to reflect on whether the current situation, which allows for differently transposed rules in Member States and reflects asymmetries in the distribution of tasks and competences, is conducive to a coherent and viable anti-money laundering supervisory system in the Union. Various options for potential further reforms could be explored. The Commission will reflect on these matters in the context of the Report that it is mandated to deliver under Article 65 of the fifth Anti-Money Laundering Directive.

This Report, taking into account legislative developments in Parliament and Council with regard to the European Supervisory Authorities review, could consider the long-term actions suggested in the Reflection paper developed by the Joint Working Group. In particular, transformation of the Anti-Money Laundering Directive into a Regulation, which would have the potential of setting a harmonised, directly applicable Union regulatory anti-money laundering framework should be considered. Different alternatives could also be envisaged in order to ensure high quality and consistent anti-money laundering supervision, seamless information exchange and optimal cooperation between all relevant authorities in the Union. 24 This may require conferring specific anti-money laundering supervisory tasks to a Union body.


(1)

See Communication to the European Parliament, the Council, the European Central Bank, the European Economic And Social Committee and the Committee of the Regions on completing the Banking Union - COM(2017) 592 final; Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions Completing the Capital Markets Union by 2019 - time to accelerate delivery - COM/2018/0114 final.

(2)

COM(2017) 536 final.

(3)

References to anti-money laundering in this Communication should be understood as encompassing also references to combating financing terrorism.

(4)

Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC .

(5)

The Financial Action Task Force is the international standard setter on money laundering and its recommendations are followed by all its Members.

(6)

Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU.

(7)

These cases took place before transposition of the Fifth Anti Money Laundering Directive, which will improve cooperation and information sharing between all relevant authorities.

(8)

“…there is agreement on the importance of enhancing the current monitoring of the implementation of Anti-Money Laundering measures. As a first step, the institutions will prepare a report in July. Based on this, and in close cooperation with the National Competent Authorities, there should be agreement on further measures by end 2018, possibly as part of an Action Plan.”

(9)

“For anti-money laundering, we need a set of substantive core criteria which reliably measure the money-laundering-risks that exist in the banking sector. In addition, we need a robust monitoring process reporting on the effective implementation of these criteria. Both, criteria and monitoring process, should be developed by December 2018 by European Institutions, including SSM, and Member States, with France and Germany providing common input. It is essential that such process is not only of formal nature, but materially reduces risks stemming from anti-money laundering-non-compliance.”

(10)

These legislative instruments include Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (Capital Requirements Directive); Directive 2014/65 of 15 May 2014 on markets in financial instruments (MiFID); Directive (EU) 2009/138 of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).

(11)

The fifth Anti-Money Laundering Directive seeks to remove obstacles and improve the exchange of information between anti-money laundering and prudential supervisors, and calls for their cooperation to the greatest extent possible. In addition, where an FIU carries out an analysis and detects a suspicion, it is obliged to disseminate the information to the relevant competent authorities, which might include the prudential supervisor.

(12)

The Anti-Money Laundering Directive refers to "enhanced supervisory powers".

(13)

Prudential supervisors are required to factor in anti-money laundering related aspects when granting authorisations, when assessing acquisitions of qualifying holdings or conducting fit and proper assessments, in the ordinary course of supervision as part of the on-going assessment of risks to which a financial institution may be exposed, and in cases of withdrawal of an authorisation due to a serious breach of national anti-money laundering provisions.

(14)

The prudential framework does not provide for explicit cooperation obligations between prudential and anti-money laundering supervisors that would enable timely and regular input of anti-money laundering related findings into prudential assessments, nor is there any obligation on prudential supervisors to notify their anti-money laundering counterparts or the Financial Intelligence Units (FIUs) should they uncover evidence of money laundering or terrorist financing in the entities they supervise.

(15)

The European Central Bank is in charge of authorisation, licence withdrawal and the assessment of qualifying holdings acquisitions vis-à-vis less significant institutions.

(16)

European Banking Authority, European Securities and Markets Authority, European Insurance and Occupational Pensions Authority.

(17)

For example, the European Banking Authority has published its own "Opinion on the application of customer due diligence measures to asylum seekers’ to foster a common approach to providing asylum seekers with access to payments accounts;" the European Banking Authority is an active member of the Basel Committee’s Anti-Money Laundering Expert Group; and the European Banking Authority is in the process of launching its own reviews of anti-money laundering supervisors with a view to strengthening the effectiveness of anti-money laundering supervision of banks.

(18)

Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms.

(19)

Article 9 of the European Banking Authority Regulation.

(20)

In addition to comprehensive reviews of each competent authority, the European Banking Authority may choose to conduct thematic or in-depth reviews covering selected issues, reviews of compliance with certain regulatory requirements, reviews of practical supervisory processes across a few selected authorities, or other form of reviews related to pertinent issues.

(21)

Report from the Commission to the European Parliament and the Council on the assessment of the risks of money laundering and terrorist financing affecting the internal market and relating to cross-border activities - COM(2017) 340 final.

(22)

The Joint Opinion is required under Article 6(5) of Directive (EU) 2015/849.

(23)

 Including those in the field of taxation.