AMLA is a game-changer for EU’s AML/CFT framework
The European Union has taken a significant step forward in its efforts to combat money laundering and terrorist financing with the establishment of the Anti-Money Laundering Authority (AMLA). This pivotal development marks a new era in financial regulation, aiming to harmonize and strengthen anti-money laundering (AML) and counter-terrorism financing (CTF) measures across member states.
On March 19, 2024, the European Union’s Anti-Money-Laundering (AML) package received approval after a joint meeting of the European Parliament’s Economic Affairs and Justice Committee. The package introduces two pivotal developments:
1. Single AML Rulebook: This comprehensive set of regulations will standardize AML practices across all EU member states, replacing the current patchwork of national regulations. This unified rulebook aims to simplify compliance for businesses operating across borders within the EU, thereby reducing administrative burdens and enhancing the effectiveness of AML enforcement. Key improvements include tougher standards on customer due diligence and the expansion of obligations concerning beneficial ownership.
2. EU Anti-Money Laundering Authority (AMLA): This new regulatory body will be both a regulator and supervisor within the EU’s AML framework. AMLA’s responsibilities will extend to specifying the details of the new AML rulebook through the development of technical standards and guidelines. It will also create a common supervisory methodology for national AML authorities, conduct thematic reviews, and directly supervise a selection of 40 firms identified as presenting the highest risks for money laundering. The authority is tasked with developing 80 implementing and regulatory technical standards (ITS/RTS), which will refine and detail the new unified AML/CFT rulebook.
AMLA will spend the subsequent three years formulating the necessary technical standards and guidelines before the Single AML Rulebook is implemented in 2027. During this period, AMLA will also focus on developing common supervisory standards and enhancing its supervisory capabilities. Direct supervision by AMLA is anticipated to commence between 2027 and 2028, marking a new phase in the EU’s robust approach to combating financial crimes.
The Birth of AMLA
In December 2023, the EU Parliament and Council reached a provisional agreement on the establishment of AMLA, marking a significant milestone in EU financial regulation. This decision follows the European Commission’s legislative proposal from July 2021, laying the groundwork for an authority designed to tackle financial crimes more vigorously across EU borders. The choice of Frankfurt as AMLA’s headquarters in February 2024 adds a strategic aspect, positioning AMLA at the heart of European finance.
Timeline:
Source: https://finance.ec.europa.eu/financial-crime/amla_en
The Central Role of AMLA
The Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA) will be a decentralised EU agency that will coordinate national authorities to ensure the correct and consistent application of EU rules.
The aim of the EU Authority will be to transform the anti-money laundering and countering the financing of terrorism (AML/CFT) supervision in the EU and enhance cooperation among financial intelligence units (FIUs).
Key Implications of AMLA
Direct and Indirect Supervision
AMLA is set to play a dual role in the supervision of the EU’s financial landscape:
· Direct Supervision: AMLA will have the authority to directly supervise up to 40 of the highest-risk financial entities operating across EU borders. This includes major banks, crypto asset service providers, and other financial institutions that are prone to risks associated with money laundering and terrorism financing. AMLA’s direct oversight aims to ensure these entities adhere to the strictest compliance standards to safeguard the financial system.
· Indirect Supervision: Beyond these entities, AMLA will also indirectly supervise a broader range of institutions within the financial and non-financial sectors. This role involves overseeing national supervisory authorities to ensure they are effectively managing the risk of financial crimes within their jurisdictions.
Coordination of Financial Intelligence Units (FIUs)
AMLA will enhance the operational capabilities of FIUs across the EU by:
· Facilitating Cross-Border Case Analysis: Supporting FIUs in their investigations of cross-border money laundering and terrorism financing cases.
· Enabling Controlled Information Exchange: Managing and improving the FIU.net, a pivotal platform for the exchange of information among EU countries. This system is essential for tracking and analyzing suspicious activities that span multiple jurisdictions.
· Providing Advanced Data Analytics: Offering tools and resources to deepen the analytical capabilities of FIUs, enabling them to more effectively process and interpret complex data related to financial crimes.
Development of AML/CFT Regulations
AMLA will also have a significant role in shaping the regulatory framework that underpins AML and CFT efforts across the EU:
· Developing Standards and Guidelines: One of AMLA’s critical functions will be to complement existing EU AML/CFT rules by developing regulatory and implementing technical standards (ITS/RTS). These standards will provide detailed, actionable guidelines that enhance the clarity and effectiveness of AML/CFT measures.
· Issuing Guidelines: By issuing guidelines, AMLA will help ensure that EU-wide rules are applied consistently and effectively across all member states, thereby reducing the scope for regulatory discrepancies that can be exploited.
The establishment of AMLA addresses critical gaps in the current financial system’s ability to handle complex money laundering schemes linked to international actors. The slow and disjointed response to a number of AML/CFT scandals has been a significant impediment, something AMLA aims to overcome with its streamlined and forceful framework.
A Focus on Emerging Technologies
Recognizing the rapid evolution of financial technologies, AMLA is set to play a pivotal role in addressing the challenges posed by cryptocurrencies and other emerging financial technologies. With the rise of digital finance, AMLA’s proactive stance on monitoring and regulating these new technologies is crucial in preventing their misuse for money laundering and terrorism financing.
What’s new under Single AML Rule?
The Single AML Rulebook introduces significant changes to broaden the scope of entities and activities under stringent monitoring to combat money laundering and terrorist financing across the European Union. Key updates include:
- Expansion of Obliged Entities: The regulation now encompasses a wider range of sectors. Newly included entities are crowdfunding service providers, crypto asset service providers, non-financial mixed-activity holding companies, luxury goods traders, professional football clubs, and their agents.
- Extended Definition of Politically Exposed Persons (PEPs): The definition now includes heads of local or regional authorities from regions with populations of 50,000 or more, reflecting a deeper scrutiny over potentially higher-risk profiles.
- Enhanced Due Diligence (EDD) Requirements: EDD measures must now be applied consistently to both occasional transactions and ongoing business relationships that involve high-risk third countries, as identified in alignment with the Financial Action Task Force (FATF) list.
- Regulatory Technical Standards by AMLA: The Anti-Money Laundering Authority (AMLA) will develop technical standards for identifying natural and legal persons. This includes updates to both simplified and enhanced due diligence practices. Specifically, there are additional EDD measures for high net worth individuals in wealth management scenarios involving sums of €5 million or more.
- Cash Transaction Limits: There is a new EU-wide maximum cash payment limit set at €10,000. For cash transactions between €3,000 to €10,000, obliged entities are required to apply EDD.
- Customer Information Update Frequency: The regulation mandates more frequent updates of customer information, requiring annual reviews for customers assessed as high risk, and once every five years for others.
- Risk Assessment Categories: The rulebook specifies that risk assessments should cover various categories including activities, products, transactions, delivery channels, customer profiles, and geographical areas of operation.
- Restrictions on Outsourcing: There are new restrictions on outsourcing certain activities, particularly involving providers from countries deemed high risk.
- Compliance with Targeted Financial Sanctions: AMLA is tasked with supervising compliance with targeted financial sanctions, enhancing the enforcement of these measures across member states.