Money laundering and terrorist financing issues pose a serious challenge to banks’ sound management and can even threaten a bank’s very survival.
That is why these issues matter for the ECB as a prudential
supervisor, even if we do not have mandated responsibility for checking
how banks comply with the rules to prevent these illegal activities.
Indeed, how a bank delivers sound management processes to properly
govern anti-money laundering and anti-terrorism financing are relevant
to prudential supervisors at each stage of a banks life-cycle from
”cradle to grave”. Prudential supervisors have responsibility throughout
the life-cycle beginning with granting a banking licence, to assessing
whether the bank’s managers are fit for the job, to reviewing how the
business strategy risks are evaluated, how client and counterparty risks
are overseen and managed in the everyday operations of the bank, and
finally, whether and when a bank’s licence should be withdrawn.
To
keep banks safe and sound, it is crucial that both supervisors
responsible for anti-money laundering and countering the financing of
terrorism (AML/CFT) and prudential supervisors work very closely with
each other. Now that legislators are setting up a new European
framework, including a dedicated EU anti-money laundering authority, we
have a unique opportunity to enhance this much-needed collaboration.
Competent authorities will only be able to effectively perform their
tasks if all relevant information is shared, including through a central
data hub. The new European anti-money laundering authority will have a
key role to play in this effort, as discussed in a recent blog post.
In
this blog post we will focus on three areas of supervision where
enhanced cooperation between AML/CFT supervisors and prudential
supervisors can improve the effectiveness of supervision, increase
alignment on supervisory measures and thus help create a safer banking
sector.
Granting authorisations and withdrawing licences
Within
the Single Supervisory Mechanism, the ECB has the exclusive competence
to grant banking licences, approve acquisitions of a qualifying holding
in a bank and withdraw a bank’s licence if it does not comply with
prudential requirements or for any other reason provided for in
legislation such as in the case of serious AML/CFT breaches. To preserve
the resilience of the banking sector, when assessing these procedures
the ECB considers all AML/CFT risks, i.e. the extent to which the origin
of funds, business model, governance arrangements, reputation of
shareholders and management body give rise to ML/TF risks. Indeed, ML/TF
risks pose a danger not only to individual banks but to the resilience
of the financial markets as a whole.
Particularly when assessing
whether to withdraw a licence due to serious AML/CFT breaches, the ECB
must rely on the facts and findings identified by the competent AML/CFT
authority. Close cooperation between ECB and AML/CFT supervisors is
therefore essential. This cooperation should cover not only the exchange
of information, but also the harmonised application of supervisory
powers to prevent the uncoordinated imposition of administrative
sanctions and measures. It is thus important to clarify in the AML/CFT
package that while AML/CFT authorities have the competence to propose
withdrawing a licence, for the banks in the Banking Union, it is another
authority (the ECB) that has the exclusive competence to decide upon
the licence withdrawal, which will be dependent upon close cooperation
and exchange of information with the AML/CFT authority.
Assessing and reassessing board members
The
ECB conducts fit and proper assessments of the suitability of directors
for significant supervised entities. The primary objective of the
assessments and the reassessments is that directors are managing and
overseeing the bank in a prudent manner. In conducting assessments, we
consider findings relating to AML/CFT which may have an impact on the
suitability of the assessed individuals. We have recently reinforced the
framework for reassessment with a special focus on AML/CFT findings.
The new framework is outlined in the new Guide to Fit and Proper Assessments
(published in December 2021). For example, the outcome of AML/CFT
on-site inspections or the existence of ongoing legal proceedings
related to AML/CFT, or court or administrative authorities’ decisions
could provide grounds for conducting a reassessment. Cooperation between
the prudential and AML/CFT supervisors through the exchange of
information on any findings or sanctions in this respect is therefore
vital.
The new AML/CFT legislative package is a tremendous
opportunity to enhance this cooperation, especially for assessing the
suitability of those board members and senior managers who will be
responsible for compliance and AML/CFT topics. That is why it is
essential to clarify practical rules where the competence for these
suitability assessments is allocated to an authority other than an
AML/CFT supervisor, such as the ECB. The respective AML/CFT supervisor
should provide the ECB with any relevant information related to the
required experience and skills of the board member responsible for
AML/CFT matters, within an appropriate deadline. This will help the ECB
to consider all the relevant information when performing the suitability
assessment....
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