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The proposed anti-money laundering (AML) authority (AMLA) will be a gamechanger for the supervision of AML efforts in the European Union, experts in the field have told VIXIO.
The EU published its proposal to revamp AML and counter-terrorist-finance (CTF) rules on July 21, with the aim of streamlining and centralising its efforts to prevent financial crime.
“As a whole, it is an ambitious package and a bold move of the European Commission to tackle financial crime,” said Rūta Bajarūnaitė, an expert at Lithuania’s Anti-Money Laundering Competence Centre, who suggested that the EU will have to make its proposal clearer in future, considering how extensive it is.
The centrepiece of the trading bloc’s ambition is to create an overarching AML regulator; AML insiders have welcomed this.
“The good news is that there will be greater harmonisation of AML/CTF rules across the EU and we can expect a single integrated system of AML/CTF supervision, meaning it will be based on common supervisory methods,” said Bajarūnaitė.
AMLA will have its biggest effect on financial institutions, said Owen Strijland, a Netherlands-based financial services director at Protiviti, the consulting firm.
“Clients are currently dealing with a national regulator but, going forward, they will have a supranational supervisor at EU level, with larger financial institutions under direct supervision. Institutions will also now have regulation that directly affects them, leaving very little room for error…not a lot of room for error.”
“Undoubtedly, the main change is the creation of the new supervisory authority,” agreed Pierre-Manuel Sroczynski, a France-based compliance consultant at Somerset Advisory.
The plans remind Sroczynski of the time several years ago when EU-level prudential supervision began. He said that he expected AMLA to take its inspiration from the approach that the European Central Bank took in creating the Single Supervisory Mechanism, which granted it regulatory power over EU banks, in 2014.
“It is a cultural change as market participants are not being supervised nationally any more with regulators who are the same nationality, or perhaps people that you studied alongside,” he said.
European compliance teams will therefore need to be much more solid and numerous than they are today, he suggested, continuing: “AML supervision should now evolve more into a permanent on-site control and that the need for additional profiles should be felt.”
“Institutions aren’t used to dealing with supranational authorities and skills like communication aren’t the strong point of AML insiders in the bank,” he pointed out.
Instead of being able to talk themselves out of certain findings, financial institutions will have to go to an EU authority that will be a lot tougher on them than national regulators may be, cautioned Strijland.
“On the other hand, the regulation is quite straightforward and the basics of what they have to comply with will become a lot easier.”
“The establishment of the new authority will be interesting to follow and I am sure that banks and corporates will be monitoring this development closely to see how it will work,” said Omri Kletter, vice president at Bottomline Technologies.
As well as grappling with a new authority, financial institutions and regulators in EU countries will need to prepare for a raft of new requirements, including enhanced customer due diligence (ECDD), fresh requirements for the processing of personal data, and more transparency regarding crypto-transactions.
This last has already been introduced as a law in the EU member state of Germany. It is a response to the travel rule that the Financial Action Task Force has promulgated. When it comes into effect, the parties to a crypto-transaction will have to transmit information about the client and beneficiary — as with money transfers — so that the authorities can trace the transactions.
People in the crypto-industry have expressed their concerns about this new requirement, suggesting that it could break Europe’s General Data Protection Regulation.
Cash transactions have also come into the scope of the new AML proposal, with the European Commission suggesting that there should be a ceiling of 10,000 euros on cash transactions in the trading bloc.
Unlike AMLA, this is likely to cause great divisions in the EU.
“I’m impatient to see how the German people will deal with the new cash ceiling that is being introduced,” said Sroczynski, pointing out that after the nightmare of galloping inflation between the wars, it has become de rigeur for them to use cash.
Neighbouring Austria has already sounded the alarm about the new rule-to-be, with the finance minister, Gernot Blümel, ruling out his support for the phasing-out of physical cash.