06 December 2017

The ESAs publish draft technical standards to strengthen group-wide management of money laundering and terrorist financing risks

Credit and financial institutions have to put in place and maintain anti-money laundering and countering the financing of terrorism (AML/CFT) policies and procedures to assess and manage effectively the money laundering and terrorist financing (ML/TF) risks to which they are exposed. Where they are part of a group, these AML/CFT policies and procedures have to be applied at group-level. This can be challenging where branches or majority-owned subsidiaries are located in a third country, outside of the European Economic Area (EEA),   whose law may not permit the application of some or all parts of a group's AML/CFT policies and procedures.

In such cases, credit and financial institutions must take effective steps to manage the resultant ML/TF risk.  These may include:

• obtaining consent from customers to overcome restrictions on the ability to share and process customer data;
• carrying out enhanced reviews to be satisfied that branches and majority-owned subsidiaries in those jurisdictions are able to adequately assess and manage ML/TF risk;
• restricting financial services and products offered by the branch or majority-owned subsidiary in the third country to those presenting a low ML/ TF risk and requiring approval from senior management at group-level of all higher risk business relationships;
• restricting the ability of other entities in the same group to rely on customer due diligence measures carried out by a branch or majority-owned subsidiary in those requiring that the risk profile and due diligence information related to customers of such branches and majority-owned subsidiaries are kept for as long as legally possible under the third country's legislation, and in any case for at least the duration of the business relationship.

The draft RTS require credit and financial institutions to determine the extent of these measures on a risk-sensitive basis and be able to demonstrate to their competent authorities that the steps taken are commensurate with the ML/ TF risk.

Press release

Joint draft RTS

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