EU Commissioner Mairead McGuiness on new EU AML Authority

“At the heart of our plans are more harmonised rules and a new AML Authority at EU level. The idea is to have common standards, common application and common supervision of our rules. That is as it should be in a single market.”

European Union Commissioner Mairead McGuinness gave a speech yesterday (Monday 17th March 2021) at AMLintelligence.com Boardroom Series. Like other non-executive directors of regulated companies (obliged entities/designated persons), I took the time to read through the speech.
Issues which caught my eye, not relevant just for traditional financial services, but indeed innovate one like fintech, are:

A) Introduction:

• a rethink of AML strategy is needed if we are to win our fight against crime
• European Union’s future AML system is forthcoming in July in a detailed Action Plan (something to read and absorb if you are fortunate enough to be on holidays)
• transposition at national level of AML requirements can diverge far too easily
• rules for the private sector will be laid down in a directly-applicable EU regulation
• we need to respect the fact that our system is risk-based
• traceability of transfers of virtual assets. So they will be added to the scope of the existing Transfer of Funds Regulation (TFR) [Ed - I hear a lot of 'complaints' about this from crypto exchanges. Many in the tradition finserv world, which have lived with the TFR are thinking "welcome to the party' virtual assets!]

B) AML Package:

"At the heart of our plans are more harmonised rules and a new AML Authority at EU level. The idea is to have common standards, common application and common supervision of our rules. That is as it should be in a single market."

Firstly, 

• The application of AML rules has suffered from a lack of sufficient detail at EU level. This means that transposition at national level can diverge far too easily. And that has resulted in weak links across the internal market. The EU wants this to end.
• Rules for the private sector will be laid down in a directly-applicable EU regulation. There will be the same rules across the EU in the most substantial areas.
• There will be some margin for the Member States in relation to how they want to organise their system, especially as regards the details about how national supervision and Financial Intelligence Units work.
• The EU will continue to respect the fact that our system is risk-based. But when risks are relevant for the EU as a whole, then the EU will act at EU level.
• The list of sectors covered by AML rules will be reviewed in the new proposal. One of the first steps will be to align the EU with the latest Financial Action Task Force (FATF) standards and cover all types of Virtual Asset Service Providers as Obliged Entities.
• Ensuring the traceability of transfers of virtual assets. They will be added to the scope of the existing Transfer of Funds regulation, through which transparency will be imposed on the senders and receivers of payments. The transfers of virtual assets will be accompanied by the full details of sender and beneficiary.
• An important component of the rulebook will be legally binding technical standards to be developed by the future AML Authority.  The aim is to add more granularity to the top level rules in the regulation and bring about more harmonisation.
• Cash is the most important bearer medium. Most proceeds of criminal activity are still cash. The EU is looking at setting an EU-wide upper limit for cash purchases of €10,000 on the basis that a €10,000 limit is high enough not to put into question the euro as legal tender, nor to affect financial inclusion.

Secondly, 

• The flagship of the EU reform is a new AML Authority. It will have a number of different roles:

1. It will be the direct supervisor of certain financial sector entities which operate cross-border and are in the highest risk category;
2. It will act as a coordinator and overseer of national supervisors for other entities, including - with a lighter touch - entities outside the financial sector;
3. It will coordinate and provide support to Financial Intelligence Units;
4. It will also have a regulatory role, preparing technical standards and guidelines;
5. And finally, the new Authority will advise the Commission, for example on AML risks outside the EU.

• The Authority will combine supervisory and FIU coordination tasks under one roof.

If you are wondering about the impact this will have on the director supervisor of the financial sector, this is what Ms Guinness said:

• The AML Authority will provide the EU with a better understanding of the risks facing the EU – so it will have a full picture of the risks and the measures taken to address those risks.
• The roles of direct supervisor in the financial sector and indirect supervisor outside the financial sector should be complementary.
• A limited number of financial institutions would be directly supervised by the Authority, relieving national supervisors of a significant burden.
• Experience in direct supervision, even of a fairly limited number of entities, will enable the Authority to better coordinate national supervisors that supervise the other Obliged Entities.
• The Commission wants to learn from the experience of the Single Supervisory Mechanism which supervises large EU banks.
• Direct supervision should be carried out via Joint Supervisory Teams working with national supervisors, which will also help bring together the Authority and national supervisors.

How will the new Authority be funded?:

• The new Authority will be funded to a significant degree from fees from obliged entities to avoid being an excessive burden on the EU budget.  Fees will be reasonable and manageable.

Why does the new AML Authority come to life?:

• Current planning is for the Authority to get off the ground in 2024, reach full staffing in 2025 and start carrying out direct supervision in 2026.

C: Other AML action:

• In addition to the legislative package, the Commission is the 2020 Action Plan covers three other non-legislative areas. 

1. Consultation on information exchange and public-private partnerships - The idea is to publish guidance by the end of the year. 
2. International co-operation - the Commission plans to deepen involvement in FATF and step up EU coordination on global AML issues.
3. Enforcement - this remains a top priority for the European Commission. This involves proactively looking at how the current regime is applied in all Member States. A key priority is making sure that beneficial ownership registers are up and running and fully populated. The Commission is also working on the cross-border interconnection between national beneficial ownership registers – which should start later this year.  This includes promoting awareness of the importance of beneficial ownership among civil society. Beneficial ownership is one of the areas where the Commission plans to add some clarity to the EU level rules in our upcoming proposals

"So these are busy times in the AML field. I genuinely believe that the work that we are doing now will lay solid foundations for a robust EU anti-money laundering and counter-terrorist financing regime which will stand the test of time. It is an absolutely vital task.
We have all seen enough news stories about money laundering and the systems in place failing to stop it." European Commissioner, Mairead McGuinness

Copy of Speech is located here.

Linkedin Post Here - https://www.linkedin.com/posts/peteroakes_virtualassets-finserv-regulation-activity-6800460598539816960-UBgz