State of Financial Crime 2023 Report
The European financial sector is still not wholly effective in its anti-money laundering and countering the financing of terrorism (AML/CFT) measures, the European Banking Authority (EBA) has warned in its latest review.
In the second of its annual assessments of AML/CFT measures being carried out by bank regulators/ competent authorities (CAs) across the continent, the EBA says that while meaningful reforms are being adopted, significant challenges remain in areas such as identification and assessment of ML/TF risks.
While there has been criticism of AML supervision in the EU, following scandals such as the US accusing Latvian bank ABLB of “institutionalized money laundering”, the new report shows that standards are improving.
Challenges Facing Competent Authorities
However, it highlights that challenges have hindered CAs as they try to implement an effective risk-based approach to AML/CFT supervision in their jurisdictions. Common challenges include:
- Difficulties associated with the identification of ML/TF risks relating to the banking sector and with individual banks within that sector, particularly TF risk
- Translating ML/TF risk assessments into risk-based supervisory strategies
- Using available resources effectively, including ensuring sufficiently intrusive on-site and off-site supervision
- Taking proportionate and sufficiently dissuasive enforcement measures to correct AML/CFT compliance weaknesses
The report focuses on five key areas – risk assessment, AML/CFT supervision, tackling ML/TF risks through prudential supervision, enforcement, and supervisory follow-up, and domestic and international cooperation. Findings and recommendations are also included, along with interesting observations from CAs (shown in grey boxouts), that compliance teams will find useful.
The report’s conclusions and next steps include:
- Awareness of the synergies that exist between AML/CFT and prudential supervision has significantly increased and has become a clear focus for CAs. Many are initiating measures to exchange information with other authorities to increase awareness
- Some authorities were battling geographic factors such as the sector’s exposure to customers from higher ML/TF risk, or lack of adequate legal powers, that are hampering their effectiveness
- Cooperation with Financial Intelligence Units (FIUs) is not always systemic and is often largely ineffective
- Most CAs are on track and committed to strengthening their risk-based approach to AML/CFT supervision more effectively, holistically, and comprehensively
- Greater enforcement powers mandated by the EU have started to make a difference
- AML/CFT teams in almost all CAs have grown significantly and are expected to continue expanding
Key Takeaways for Compliance Staff
Since its initial review in 2019, the EBA has provided AML/CFT training to more than 1,500 staff across the EU to bring them up to speed on money laundering issues.
Compliance teams should look out for updated guidelines from the EBA on risk-based AML/CFT supervision to address key obstacles, and opinions and guidelines on tackling ML/TF risk through prudential supervision.
The report also serves as a reminder to firms to ensure they have processes ready in case of regulator visits, to demonstrate their risk-based approach to AML/CFT. This should include Know Your Customer (KYC) and customer due diligence (CDD) measures; sanctions, politically exposed persons (PEP) and adverse media screening; and the appointment of an AML compliance officer.
Round three of the implementation reviews is now underway. EBA staff are following up with CAs that were part of the first and second round of reviews, to understand the steps they have since taken to strengthen their approaches to AML/CFT supervision.
Originally published April 1, 2022, updated April 1, 2022
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