As expected, the European Commission proposed on Tuesday 20 July the creation of a new European authority dedicated to the fight against money laundering (‘EU AML authority’ or AMLA) (see EUROPE 12757/14).
Money laundering remains a serious problem in the EU, and after a series of scandals hitting European banks in 2019, the European Commission has decided to hit back hard.
“Experts estimate that around 1% of the EU’s annual GDP is linked to suspect financial activity. While the scale of laundering is difficult to assess, we are talking about many billions of euros in dirty money that is highly mobile and often invisible”, recalled the European Commission’s Executive Vice-President, Valdis Dombrovskis, at a press conference.
The AMLA is not intended to replace national authorities, but rather to coordinate them and ensure that European rules are applied correctly, said Valdis Dombrovskis. To this end, the Agency will carry out direct supervision of the entities identified as the riskiest in the cross-border financial sector and indirect supervision of other entities in the financial and non-financial sector. It will also have a support and coordination role for the national financial intelligence units (FIUs).
The new EU Agency should legally exist, according to the Commission, at the beginning of 2023 and be operational in 2024 for all tasks assigned to it, except for its direct supervisory activities. Direct supervision will not be effective until 2026, for the simple reason that it must be aligned with the date of application of the new single corpus of rules proposed by the Commission (see other news).
The EBA’s competences in the field of anti-money laundering, which were granted to it by the revision of the European financial supervisory architecture (see EUROPE 11864/1), will therefore be removed and transferred to the new Agency.
According to a European Commission official, the creation of the new Agency is not a response to the failure of the EBA to carry out its new tasks. The EBA has never had direct supervisory powers, the institution recalled, stressing that the logic behind the new Agency is to go further than the current framework, in certain circumstances where risks would be better addressed at EU level than at national level.
Direct supervision inspired by the SSM
The proposed direct supervision is based on the Single Supervisory Mechanism (SSM) for the prudential supervision of banks.
The AMLA will be able to exercise direct supervision through two mechanisms. Obliged entities in the financial sector with activities in a number of Member States and which have been classified in the highest risk category by the national supervisory authorities of a number of these Member States, on the basis of a harmonised risk assessment methodology, will be subject to ongoing direct supervision. The list of these entities will be reviewed every 3 years.
For the time being, the Commission does not risk giving an estimate of the number of entities that will be subject to this direct supervision, but assures that it should be a “manageable” number for the new Authority.
In addition, it will also be possible for the AMLA to exercise temporary supervision, by requesting the Commission to place an obliged entity in the financial sector under its direct supervision, irrespective of the criteria set.
This mechanism could be triggered if there is, for example, an indication that an entity is not systematically complying with its money laundering obligations and that a significant risk of money laundering may materialise or where the national supervisor is unable to take prompt and effective action to address these risks.
The new Agency is expected to have a total of 250 staff, of which about 100 will be dedicated to its direct monitoring activities alone.
Governance, budget and location
In terms of governance, the authority will have two collegiate governing bodies: an Executive Board composed of the Chair of the Authority and five other permanent independent voting members, and a General Board with two alternative compositions: a supervisory composition comprising the heads of national anti-money laundering supervisory authorities and a composition comprising the heads of EU FIUs.
The Commission estimates total annual expenses will be 45.6 million euros once the authority is fully operational. It will be financed 25% by the EU budget and 75% by fees collected from obliged entities in the financial sector selected as the riskiest.
Obliged entities in the non-financial sector as well as other obliged entities in the financial sector that are not subject to direct supervision will therefore not have to pay anything. The methodology for determining the list of entities subject to financial contributions and the exact calculation of these contributions will be established later by the Commission in a delegated act.
As for the location of the future EU Agency, it will be up to the co-legislators to decide. “Some Member States might be interested, but it is too early to speculate on this”, said a European Commission official.
France could likely be one of the candidate countries. Paris has “undeniable qualities” to host this type of infrastructure, said a source in the French Finance Ministry, notably because the French capital already hosts the EBA, the FATF and the OECD.
First positive reactions
The first reactions to this announcement were rather positive. On the European Parliament side, MEP Markus Ferber (EPP, Germany) welcomed the creation of the new Agency, stressing that experience had shown that the EBA was not able to perform this task properly.
“The biggest risk is that we are adding just one additional layer of complexity and creating a new conflict of competences. To avoid that, it must be crystal clear that the new Authority firmly calls the shots for high-risk entities”, he stressed in a statement.
For MEP Sven Giegold (Greens/EFA, Germany), the Commission’s new proposals are a “big step forward”. After the creation of this new Authority, the next big step should be, according to him, the creation of a European Criminal Bureau, to speed up the confiscation of funds and the conviction of criminals within the EU.
“The legislative package presented by the European Commission to combat money laundering is ambitious and lives up to our expectations (...) It is essential that the European Union adopt demanding and harmonised rules, subject to reinforced and effective supervision on the ground”, reacted the French Finance Minister, Bruno Le Maire.
France, which will hold the rotating Presidency of the EU Council from 1 January 2022, intends to make maximum progress on this proposal. According to a source in the French Finance Ministry, the criteria for identifying risky entities will be one of the key issues in the negotiations between Member States, with some believing that larger entities are the riskiest while others believe that risk is not proportional to size.
There also seems to be a sense of satisfaction among stakeholders from various backgrounds. The proposal has been welcomed by the European Savings Banks and Retail Banks Group (ESBG), the European Gaming and Betting Association (EGBA) and the NGO Transparency International.
“There are clearly gains to be made from having a central supervisory authority but it is vital that the new Agency is appropriately designed and staffed from the outset”, said Jason Piper, Head of Taxation and Business Law at the Association of Chartered Certified Accountants (ACCA).
According to him, the funding of the new Agency, however, may be more contentious. “The benefits of better anti-money laundering Regulation accrue to the whole of society, and there are corresponding arguments to be made that the cost of supporting it should be spread across the whole of society”, he said.
See the Regulation: https://bit.ly/3wSglu6 (Original version in French by Marion Fontana)