The EU commission has just released an ambitious package of measures aimed at overhauling anti money laundering (AML) and anti-terrorism financing rules, with the cornerstone being a proposal for a new AML body. The aim is to improve the detection of suspicious transactions and activities and to close loopholes used by criminals to launder money or fund terrorist activities. This package will significantly bolster the EU’s existing AML framework
What does all this mean for banks in the EU?
Well, it should bring consistency in the interpretation and application of money laundering regulations – whilst the Anti Money Laundering Directive (AMLD) is law across all EU states, the new regulator will bring a coordinated effort in monitoring the application of these rules. It will also mean better analytical power with more centralised data from financial intelligence units and more informed decisions on suspicious activity.
It could also result in more targeted reviews – there is a strong possibility that EU AMLA (the body that enforces the Anti Money Laundering Act) will kick start a series of exploratory reviews to get under the skin of banks’ financial crime frameworks. And even though the UK has not signed up to 6AMLD (the sixth anti money laundering directive) yet, it remains closely aligned, so it should hopefully make it easier for the UK banks and Regulators to work collaboratively with EU AMLA and agree a consistent approach. Crytpo is also another area where 6AMLD is looking to extend its reach.
What are the future AML risks for banks?
Moving forwards under this new directive, will be a number of challenges for banks. A key one is the increasing focus on technology led legislation and the difficulty banks will have ensuring their legacy systems and frameworks are robust enough.
Another is that regulators – and this new body – will want to make ‘examples’ of banks guilty of infringements. EU banks will probably now find themselves the targets of intense scrutiny of the regulators. The new body will be formed in 2024 with regulatory powers by 2026, so banks need to keep up to date with developments and key deadlines.
There is also a risk for UK banks that have a global presence – will the UK and EU remain aligned and will they continue to share information and best practice?
How it might affect AML efforts elsewhere?
The setting up of this new body might well delay adherence to AML legislation – it takes time to set out new standards and communicate them. There has been huge investment in AML development, remediation over the last 10 years and there is definitely more to do, but this could stall this progress as banks wait for the EU AMLA to get established. The more communication and confidence in the direction of travel will allow financial institutions to get on the front foot and prepare.
Both the EU and the UK want to set AML standards and one of the benefits this new regulator will bring is to close the gap in the application of AML legislation. So it’s imperative the UK and EU remain aligned and continue to be allies in the fight against financial crime.
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