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The EU AML/CFT framework has suffered from persistent deficiencies over a number of years, as highlighted by the European Commission last summer in their AML package. Whether it is a high-profile scandal or compliance failings, the EU has faced obstacles in capturing the illegal flow of money across Member States. This has in part been due to the difficulty of harmonising laws across different jurisdictions whose authorities have varying supervisory powers, tasks and responsibilities.
However, in 2019, important steps were made to clamp down on the illegal activity. As part of the European Commission’s ambitious proposal to strengthen EU-wide Anti Money Laundering supervision, greater supervisory powers were given to the European Banking Authority (EBA). This has given the institution the power to lead, coordinate and monitor the AML/CFT efforts of all EU financial service providers and competent authorities.
Since the expansion of the EBA’s responsibility, there have been important signs of progress. In February 2020, the EBA published a report on national authorities’ approaches to AML/CFT. The report indicated that most national authorities in the yearly sample were taking significant steps to strengthen their approach to supervision.
However, the report also noted that not all countries were able to cooperate effectively with domestic and international stakeholders. This includes financial institutions, authorities and law enforcement. This inability to further harmonise the supervisory framework, both internationally and domestically, indicates that there is still work needed to improve how EU AML standards are applied.
Currently, the EU’s approach to AML/CFT remains fragmented and struggles to keep pace with new developments, with a fifth version of a directive that acts more as guidance for EU Member States and which is far from being an enforceable rule. One option would be to replace (part of) the current Directive by a Regulation, which would set a harmonised, directly applicable regulatory and supervisory framework in the European Union. It could also give the EBA greater capacity to enforce harmonised AML standards.
Additionally, steps need to be made to ensure that the responsibility for harmonising EU approaches does not fall solely on the EBA. Greater information sharing needs to be encouraged and facilitated amongst financial institutions, supervisory authorities and law enforcement authorities. To achieve this, developing a public-private ecosystem within and across Member States will be crucial.
Technology could also provide the key to facilitating industry collaboration. For instance, strengthening the coordination mechanism for Financial Intelligence Units (FIUs) could be achieved with a proper use of a single digital system collecting, sharing and analysing information across Member States. This way FIUs could suitably support each other without duplicating their efforts.
The EU’s collaboration internationally, domestically, and technologically will be crucial in the fight against money-laundering and the financing of terrorism. If no proper steps are taken now, the EU could find itself with another controversial list of money laundering scandals and the industry criticism that will accompany them.
Read our discussion paper for further highlights on how industry collaboration can better strengthen and harmonise the EU’s supervisory framework in the AML/CFT space.