On 5 February 2020, the European Banking Authority (“EBA”) published a new Consultation Paper on revised guidelines pertaining to money laundering and terrorism financing risk factors. We at PayTechLaw have taken this as an opportunity to take a closer look at the role of the EBA. And of course at the Consultation Paper.
The EBA as part of the European System of Financial Supervision
The EBA was created on 1 January 2011 by Regulation (EU) No. 1093/2010 and is part of the European System of Financial Supervision (“ESFS”). The ESFS was set up as a consequence of the financial crisis of 2007 and 2008. The intention is for the ESFS to ensure an adequate application of the rules applicable to the financial sector in all member states in order to retain financial stability and trust in the financial system as a whole as well as sufficiently protect consumers.
In addition to the EBA, the following are part of the ESFS:
- the European Systemic Risk Board (“ESRB”);
- the European Insurance and Occupational Pensions Authority (“EIOPA”)
- the European Securities and Markets Authority (“ESMA”);
- the Joint Committee of the European Supervisory Authorities;
- the national supervisory authorities in the individual member states.
EBA, EIOPA and ESMA are the three European Supervisory Authorities (“ESAs”). The main task of the ESAs is to create uniform rules for financial supervision in the European Single Market. This includes the development of regulatory and implementing technical standards that are subsequently adopted by the Commission as delegated or implementing legal acts. Additionally, the ESAs publish guidelines and issue recommendations. These guidelines and recommendations are not legally binding. However, national supervisory authorities must adhere to the rule of “comply or explain”. This means that if they do not want to adopt the rules, they need to state the reasons to the ESAs within a set deadline.
The ESAs have the authority to require measures to be taken by national supervisory authorities in a crisis situation. However, the continued monitoring of the institutions remains the responsibility of the national supervisory authorities.
New role, old challenges
Up to now, the ESAs were jointly responsible for promoting a consistent and effective implementation of EU laws to combat money laundering and terrorism financing by the competent national authorities. By the end of 2019, Regulation (EU) 2019/2175) made the EBA the sole competent authority to carry out the tasks of all three European authorities in the area of combating money laundering and terrorism financing. The intention is to optimise the use of the EBA’s know-how and resources for the benefit of the entire financial sector.
Since 1 January 2020, the EBA has now taken on a leading role in coordinating and monitoring the prevention of money laundering and terrorism financing at a European Union level. The main challenge remains the lack of complete harmonisation of anti-money laundering laws. In light of this, the EBA wants to use its new role to increase harmonisation regarding national approaches to combat money laundering and terrorism financing as well as create a level playing field in the prevention of money laundering.
In its “Factsheet on the EBA’s new role” it outlines the measures it intends to take to reach this aim. These include, in particular:
- the development of an EU-wide strategy for the prevention of money laundering based on regulatory and implementing technical standards, guidelines and recommendations;
- implementation of this strategy and the EU laws it is based on by introducing, among others, a question-and-answer procedure;
- recording, evaluating and disseminating information about EU-wide risks of money laundering and terrorism financing as well as the development of a common approach to contain such risks;
- setting up of a permanent committee to combat money laundering and terrorism financing;
- establishing a database containing, among others, information on the shortcomings of individual institutions in the prevention of money laundering and any measures taken by the competent authorities to remedy such shortcomings;
- facilitating cooperation with authorities in third countries to ensure that infringements by institutions with cross-border business are extensively and promptly addressed.
The EBA’s Consultation Paper
The EBA published its Consultation Paper (JC 2019 87) (“Consultation Paper”) on 5 February 2020. In it, it presented a draft of the amended Guidelines on Risk Factors (JC 2017 37) (“Draft Guidelines on Risk Factors”) and allowed interested parties to submit comments.
The “original” Guidelines on Risk Factors were published by the ESAs in 2017. They essentially set out risk factors that companies must take into account when assessing their money laundering and terrorism financing risk when they enter into a business relationship or carry out occasional transactions. Since then, legislation as well as risk exposure have changed and therefore a “new edition” of the Guidelines on Risk Factors was published.
The Consultation Paper consists of multiple parts: A brief introduction on how the consultation procedure works is followed by an executive summary as well as background information and reasons. This is followed by the actual Draft Guidelines on Risk Factors. They are made up of a general Part 1 that addresses all companies and a more specific Part 2 that is targeted at individual sectors.
The amendments affect in particular:
- company-wide and individual risk assessment regarding money laundering and terrorism financing;
- customer-related due diligence obligations, including those regarding beneficial owners;
- risk factors relating to terrorism financing;
- guidelines on new risks, such as e.g. the use of innovative solutions to comply with customer-related due diligence obligations.
In fairness, we should mention at this point that the Consultation Paper was jointly drafted by the ESAs but now “only” the EBA appears as the sole author due to the shift in responsibilities introduced by Regulation (EU) 2019/2175. This new role is also the reason why the EBA will carry out the consultation process on its own. With the publication of the final Guidelines on Risk Factors after the consultation procedure has closed, the “original” Guidelines on Risk Factors (JC 2017 37) will be repealed.
The deadline for comments is 5 May 2020. Until then, we at PayTechLaw will be looking at the Consultation Paper in more detail and considering its various aspects in a series of articles.
Cover picture: Copyright © Adobe Stock /shane