Banks might face EU site visits under leaked anti-money laundering proposals

17 March 2020 00:00

EU banks and other entities at high risk for money laundering might face on-site visits from the bloc's inspectors under plans being drawn up by the European Commission, MLex has learned.

A law to come into effect in 2023 will also seek to unify the due-diligence checks banks and others must make on their customers to avoid Danske Bank-style problems with dirty money, said a draft commission policy document seen by MLex.

A slew of recent banking scandals, including the shuttering of Latvia’s ABLV and Malta’s Pilatus, and the failure by authorities to investigate up to 200 billion euros ($220 billion) of suspicious payments at Danske Bank’s Estonian branch, have convinced regulators that the EU’s anti-money laundering regime is not up to scratch.

Squabbles over who should scrutinize the units of cross-border banks are matched by industry protests that they must follow slightly different procedures to check transactions or verify new clients in each country where they operate, even within the EU’s supposedly unified single market.

Now the EU says those checks can be made easier through legal changes which could be proposed in the first three months of 2021, leading to an “integrated EU … system” against money laundering and terrorist financing, known as AML/CFT, by 2023, the document said.

“On-site inspections to assess the effectiveness of AML/CFT in member states will be critical to bring about high quality standards across the union,” said the draft, which is not dated.

The draft appears to favor a wide scope for the new powers, saying that limiting it to just banks and payment providers would “leave weak links in the EU supervisory framework and fail to ensure an effective AML system.”

One alternative floated by the draft would be to have direct EU checks on financial institutions. For other kinds of bodies linked to money laundering, which often include law firms or art dealers, EU watchdogs would keep a more indirect watching brief, and could intervene in case of trouble, the draft said.

The identity of the supervisor could also be linked to the risk of specific institutions, the document suggests, which is similar to the EU's bank-prudential rules, where the European Central Bank takes responsibility only for the largest and most significant banks.

Creating a new body to take on those responsibilities could prove costly, the draft warns, but the commission is also cautious about handing powers to the European Banking Authority, given recent conflict-of-interest concerns.

The EBA’s “governance and decision-making processes would need to be reviewed to guarantee that supervisory decisions are always taken independently, in the sole interest of the EU,” the document said.

A report prepared by EBA staff last year found that Estonian and Danish financial regulators had broken EU law by failing to investigate the Danske case — but the report was quashed by the agency’s own board of supervisors, which includes the heads of the two authorities in question.


The EU should change the legal form of its law, currently a directive which must be placed into separate national laws, and extend it to new areas, said the draft anti-money laundering action plan.

Parts of the law could be turned into a regulation with direct effect across the EU, including “at a minimum ... provisions laying down the list of obliged entities, customer due-diligence requirements, internal controls, reporting obligations,” and requirements to report the ownership of trusts, companies and bank accounts, it said.

“The scope of EU legislation may need to be expanded to address the implications of technological innovation and developments in international standards,” allowing new customers to be identified online, capping large cash payments, and expanding checks to cover the providers of virtual assets such as Bitcoin or Facebook's Libra.

A legislative overhaul could also resolve gray areas in cases like ABLV, when a money-laundering scandal leads to a bank being declared as failing, and how the laws interact with legal guarantees to offer basic banking services to all EU residents.

The bloc’s data-protection laws should not put the brakes on vital information-sharing among authorities, the document added.

“Uncertainty about the application of data protection rules makes it difficult for obliged entities to access information relevant for carrying out customer due diligence and for public authorities to exchange information between them,” the document said.

The action plan was due to be published March 25, but seems likely to be delayed due to the coronavirus pandemic.

The pandemic is both constraining the commission's resources and redefining its political priorities, which might have an impact both for the likely publication of the strategy and its eventual implementation.

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