New European authority aims to strengthen framework to fight money laundering

The creation of a new Anti-Money Laundering Authority will transform the supervision of money laundering and financing terrorism (AML/CFT) in the EU. Proposed reforms also extend the AML/CFT rules to all crypto-asset service providers, as well as include specific rules concerning due diligence on customers and beneficial ownership. It is expected that some of these measures will have an operational impact on institutions requiring action.

The main aim of creating the European authority is to strengthen cooperation between Financial Intelligence Units (FIUs) and coordinate national authorities to ensure that the private sector applies EU rules correctly. It will also be responsible for supporting FIUs to make financial intelligence a key source for enforcement.

The new authority is an important element of the legislative package proposed by the European Commission on 20 July 2021 and implements the commitments made in the European Union’s (EU) Global Policy Action Plan to strengthen the existing AML/CFT framework.

Improving detection and closing loopholes

The measures aim to improve the detection of suspicious transactions and activities and close loopholes used by criminals to launder the proceeds of crime or finance terrorist activities through the financial system.

As well as the draft regulation to establish the new EU AML/CFT authority⁽¹⁾, there will be an AML/CFT regulation on rules concerning due diligence on customers and beneficial ownership. A sixth AML/CFT Directive⁽²⁾ will contain rules on national supervisory authorities and financial intelligence units in Member States, and a revision of regulations on fund transfers will ensure traceability of crypto-asset transfers.

While these texts are currently in draft form, a European Parliament and Council regulation is an appropriate tool to help create a single body of law as it is directly and immediately applicable. This removes the possibility of variations in application from one Member State to another caused by differences in transposition into national law.

A single AML/CFT supervisory system

In terms of duties, the authority will be responsible for establishing a single AML/CFT supervisory system in all EU Member States. There will be a high degree of convergence of supervisory standards and direct monitoring of the riskiest financial institutions operating in many EU Member States. Further duties will include monitoring and coordination between national supervisors of other financial entities, as well as coordination between supervisory authorities for non-financial entities. In addition, the authority will support cooperation between FIUs and facilitate the coordination between them to improve the detection of illicit cross-border financial flows.

The legislative proposal highlights the plan to harmonise AML/CFT legislation across the EU and will allow both FIUs and law enforcement agencies to access key bank account and safe deposit box information more quickly. This measure is intended to speed up financial investigations and the seizure of criminal assets in cross-border cases.

EU AML/CFT rules applicable to the entire crypto-asset sector

The proposed reform extends the AML/CFT rules to all crypto-asset service providers [4] to ensure full traceability of transfers and to detect any potential use for money laundering or financing terrorism. In addition, anonymous wallets for crypto-assets will be prohibited from fully implementing the EU’s AML/CFT rules in the crypto-asset sector.

Seeking global collaboration

The fight against money laundering is a challenge that requires strong international cooperation. Therefore, the Commission is already working closely with its international partners to curb the situation.

The Financial Action Task Force (FATF) issues recommendations to countries. A country that is listed by FATF will also be listed by the EU. There will be two EU lists, a “black-list” and a “grey-list, reflecting the FATF listing. Following the listing, the EU will apply measures proportionate to the risks posed by the country.

The EU will also be able to include countries not listed by the FATF, where, according to an independent assessment, they pose a threat to the EU financial system.

Next steps

The legislative package now has to be examined by the European Parliament and the European Council. The planned Anti-Money Laundering Authority is then expected to come into operation in 2024.

In conclusion, the work carried out in preparation for these legislative proposals has shown how important it is to centralise matters relating to the fight against money laundering and financing terrorism to allow the EU to keep pace with a complex international environment.

[1] The new authority will be established by amending Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010; (2) “AMLD 6”; (3) Regulation (EU) 2015/847; (4) Only certain categories of crypto-asset service providers are currently subject to AML/CFT rules. See Regulation 2015/847.