Insights

On 22 March 2022, the European Banking Authority (EBA) has published its second report which summarises the findings from its assessment of competent authorities’ approaches to the anti-money laundering (AML) and countering the financing of terrorism (CFT) supervision of banks.

In the second round of the EBA’s reviews, review teams (led by EBA staff and supported by a team of national AML/CFT experts) assessed seven competent authorities (the “CAs”) from seven EU/EEA Member States over the course of 2020 and 2021 and:

• made recommendations tailored to each competent authority to support their AML/CFT work; and
• evaluated how prudential supervisors in these seven Member States managed ML/TF risk in line with their supervisory remit and scope.

The review team found that:

• all the CAs had undertaken significant work to implement a risk-based approach to AML/CFT;
• the AML/CFT supervisory staff in all the CAs had a good, high-level understanding of international and EU AML/CFT standards and were committed to the fight against financial crime;
• the AML/CFT teams in almost all the CAs had grown significantly and were set to expand further;
• most of the CAs had made tackling ML/TF one of their key priorities;
• in some cases, significant reforms were under way to strengthen the CA’s approach to the AML/CFT supervision of banks;
• awareness of the synergies that exist between AML/CFT and prudential supervision had increased significantly, and supervisory cooperation had become a clear focus for all the CAs; and
• several CAs had started to put in place mechanisms to exchange information with other relevant authorities.

The CAs have nevertheless experienced challenges in operationalising the risk-based approach to AML/CFT. Unique challenges to individual CAs included geographical factors such as the sector’s exposure to customers from higher ML/TF risk third countries and the lack of adequate legal powers that impeded the CAs’ ability to execute their functions effectively.

Common challenges included difficulties relating to:

• the identification of ML/TF risks in the banking sector and in individual banks;
• the translation of ML/TF risk assessments into risk-based supervisory strategies;
• the use of available resources effectively, including by ensuring sufficiently intrusive on-site and off-site supervision; and
• the application of proportionate and sufficiently dissuasive enforcement measures to correct AML/CFT compliance weaknesses.

The review team also observed that cooperation with Financial Intelligence Units (FIUs) was not always systematic and in most Member States was largely ineffective.

Although the latter challenges have hindered the implementation of an effective risk-based approach to AML/CFT supervision, the review team noted that overall, most CAs were on track and committed to strengthening their approach to AML/CFT supervision.