The European Supervisory Authorities (ESAs) consisting of the (i) European Banking Authority (EBA); (ii) the European Insurance and Occupational Pensions Authority (EIOPA); and (iii) the European Securities and Markets Authority (ESMA) have issued a Joint Opinion identifying the current risks of Money Laundering (ML) and Terrorist Financing (TF) pursuant to Article 6(5) of Directive (EU) 2015/849. The ESAs based their Opinion on information provided by national competent authorities (CAs) involved in the sector.
The withdrawal of the UK from the EU poses several risks due to the relocation of companies from the UK to the other EU Member States, which impinges on CAs’ ability to track such companies. This may occur when a CA in a Member State to which firms relocate does not have sufficient resources to track the newly established firms.
Although the emergence of new technologies may provide tools to counteract financial crime, they also pose significant risks. When it comes to FinTech, the employment of new technologies by financial and credit institutions involves risks such as the provision of financial products and services which are essentially unregulated and fall outside the scope of existing AML/CFT legislation. Other risks that were identified in the Opinion include incomplete CDD measures and on-boarding customers using new technologies without the appropriate safeguards.
The rapid spread of virtual currencies also poses risks due to the lack of knowledge by firms employing them within their business models, as well as legal uncertainty with regard to their classification in several Member States. Virtual currencies’ anonymity also constitutes a risk in itself if customer identification and verification are not carried out properly in the processing of online transactions.
Divergent national legal frameworks expose the financial sector to ML/TF risks, which is caused partly by minimum harmonisation directives as well as differing interpretations of certain provisions of EU law. The Opinion highlights that such divergence poses major risks in the areas of AMLD4, authorisations, qualifying holdings, and fitness and propriety. Naturally, legislative divergence leads to supervisory divergence which impacts the stability of AML/CFT across the EU.
The Opinion sets out several measures that can be taken by CAs to mitigate the ML/TF risks identified. With regards to Brexit, CAs must ensure that sufficient resources are in place to supervise firms seeking to relocate.
When it comes to virtual currencies, CAs must monitor the market for new developments and ensure that national legislation is kept up to date with EU legislation and regulatory AML/CFT frameworks. CAs might also need to liaise with the private sector to gain a better understanding of new technologies and their use within the market.
In conjunction with this Joint Opinion, the ESAs have developed an Interactive Tool that allows CAs and firms to get an overview of the ML/TF risks identified in the Opinion.
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