ESAs identify weaknesses leaving high-volume transaction firms open to money laundering risks

Written by Ruby Hinchliffe
7th October 2019

The three European Supervisory Authorities (ESAs) – the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA) – have published their second joint opinion on the money laundering (ML) and terrorist financing (TF) risks impacting the European Union’s (EU) financial industry.

These weaknesses contradict the Fourth Anti-Money Laundering Directive (AMLD4)

The ESAs found that transaction monitoring and reporting suspicious transactions is still a cause for concern, particularly for firms processing high volume transactions, after analysing the national anti-money laundering (AML) and countering the financing of terrorism (CFT) competent authorities’ (CAs) data. The authorities worry that those financial institutions processing the most transactions in the industry have “weaknesses” in their control frameworks.

These weaknesses contradict the Fourth Anti-Money Laundering Directive (AMLD4), which was designed to strengthen the EU’s internal structures against ML and TF. EU member states were supposed to implement MLD4 by 26 June 2017. It’s the ESA’s responsibility to alert the industry to ML and TF risks every two years.

More broadly across the financial sector, “adequate business-wide and customer risk assessments” are still proving difficult to achieve for firms who authorities think could benefit from CAs’ advice.

The joint opinion also found discrepancies between AMLD4 and other EU legal acts. Concerns relating to authorisations, fitness and propriety, and assessments of qualifying holdings,are being looked at, but authorities say some have already been addressed through recent legal framework revisions such as the Capital Requirements Directive (CRDV).

The ESAs believe new technologies will better fight financial crime, but also point out the flip side of using more technology, which could see increased ML and TF risks. New technology such as cryptocurrency are “an area of growing concern” for authorities, because the the lack of a common regulatory regime and the anonymity they offer heighten ML and TF risks.

CAs must “play a more active role” and engage more with the private sector to understand new fintech offerings. These CAs are also being asked to root out areas monitored by limited assessments and to review their supervisory approach.

An interactive tool has been created by the authorities, giving European citizens, CAs and credit and financial institutions “a snapshot of all ML and TF risks” covered in this joint opinion.