PIIE: A European anti–money laundering supervisor: From vision to legislation

23 January 2020

Joshua Kirschenbaum and Nicolas Véron write that the European Commission should act fast to capitalize on the political momentum toward creating a central AML supervisory authority and present a full proposal to EU co-legislators (i.e., European Parliament and Council) by the summer of 2020.

A joint paper published in November 2019 by six EU finance ministers paved the way for progress. The ministers’ language is clear enough to guide the Commission’s drafting and avoid protracted technical deliberations. Ten key questions call for straightforward answers.

• Should there be an EU body with a direct AML supervisory mandate? Yes, because an EU-level “supervisor of supervisors” by definition acts too late.
• Should this central authority be the European Banking Authority or a new agency? A new EU agency is preferable.
• How should that new agency be designed? It should be an authoritative and independent supervisor that can judge each case’s merits without regard to diplomatic balancing acts.
• Where should it be located? This is ultimately a political decision. A city with an active labor market for financial and legal specialists—perhaps a medium-sized financial center in post-Brexit European Union—would make sense.
• How should it be funded? As is customary for financial supervisors, the agency’s funding should be raised via a levy on the financial industry under due EU parliamentary scrutiny, separate from the general budget of the European Union.
• When should it start? As soon as is practical but not rushed, because it must be fully operational from day one.
• Which entities should be directly supervised by the central body? This is a potentially contentious issue, but the ECOFIN conclusions’ language already addresses the key choices. The SSM has set a mostly quantitative and nondiscretionary boundary between banks that are directly supervised by the ECB and those that remain under national supervision with only indirect ECB oversight. But a new AML supervisor should be able to make its own determinations, based on its risk assessment utilizing both quantitative and qualitative factors, with no presumption from pre-set mechanical criteria that would be easily circumvented by malicious actors.
• Should there be an AML Regulation to complement or replace the existing AML Directives, and what should it include? Harmonization is needed, as the December ECOFIN conclusions hint, by way of an AML Regulation (immediately applicable EU law) and modification to existing directives that would create the “single rulebook,” which the new AML supervisor would enforce.
• Can that AML Regulation and the legislation establishing the new AML supervisor be enacted simultaneously? Yes—in fact, they could be pooled in a single legislative act.
• Should the reform include an EU-level Financial Intelligence Unit? No, because such a step is less urgent and more complicated than creating a central AML supervisor.

Full article on PIIE

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