EU AML overseer unnecessary as NCAs have “right tools in place”

A series of money laundering scandals in 2018 have catalyzed discussion in Brussels about the formation of a centralized anti-money laundering (AML) body, but NCAs already have the tools in place and “the buck should always stop with the bank,” according to a PaymentEye source.

In late December, European Commission (EC) vice president Valdis Dombrovskis told the FT that due to numerous scandals across the bloc, stronger controls could be necessary. In a speech that same month, Dombrovskis stated that while Europe has “the strongest anti-money laundering rules in place” there have been “recent cases in the banking sector [showing] that they are not always supervised and enforced with the same high-quality standards.”

In September, European Central Bank (ECB) board member Benoît Cœuré told a news conference in Vienna that the ECB would support “any initiative” which would lead to a “harmonized and coordinated approach to anti-money laundering”. The ECB declined to comment on the likelihood of an EU-wide AML agency, but quoted Danièle Nouy, chair of the supervisory board of the ECB, who wrote in a December 2018 letter to an MEP: “It is important to note that the responsibility for ensuring compliance with anti-money laundering and countering the financing of terrorism (CFT) legislation remains at the national level.”

“The ECB has this notion to centralize AML compliance,” says the PaymentEye source, who is close to the matter. “This would include a central AML supervision body, responsible for overseeing all regulated activities in each country. Personally, I am not a fan of this European idea. The buck should always stop with the bank. They’ll ultimately pay the price of not having an appropriate AML risk-averse culture in the form of reputational damage along with associated higher borrowing rates, on top of financial penalties.

“National regulators have the necessary capability to put more boots on the ground, in the front line, and in banks to assess controls, create action plans and lay heavy fines should improvements not be identified.”

Denmark’s government plans to strengthen its Financial Supervisory Authority this year to mitigate concerns about regulatory capture raised following Danske Bank’s €200bn money laundering scandal in Estonia. The largest in history, it has seen 10 former employees, including a head of division, detained by Estonian authorities. Deutsche Bank also had its head offices raided by German police in connection with revelations from the Panama papers.

The FCA fined Deutsche Bank £163m in January 2017 for “serious anti-money laundering controls failings”. The latest raid, says the source, is an “indication of fundamental weaknesses at the heart of its compliance regime”. Deutsche, however, will be able to come back stronger: “It is a large bank and therefore receives much more interaction and supervisory activity from the regulators.”

Any extant EU criticism of UK AML controls stems from “a lack of understanding” of its origins and purposes, according to the source. “The Financial Action Task Force (FATF) Mutual Evaluation Review report of the UK’s AML CFT supervision marked it as moderately effective – the second-lowest mark – but we have already instituted major reform of the regime. While all EU countries are required to have transposed the Fourth AML Directive by last June, I think there are some that haven’t finished that reform yet. There is a lack of consistency across the EU, incidentally a possible reason for the ECB’s and EC’s ideas of centralization.”

According to the source, the creation of a centralized European AML body would, in the long term, have little effect on a UK outside of the European Union: “The Sanctions & AML Bill was one of the first pieces of Brexit legislation passed through parliament. We have all the necessary powers we need post-Brexit.” The bill, published in October 2017, enables the UK to impose AML sanctions as an independent nation. Prior to this, the regimes were established via powers included in the 1972 European Communities Act and by the Paris-based Financial Action Task Force (FATF).

“AML rules internationally are created by FATF, then the EU drafts its money laundering directive for member states. Post-Brexit we’ll cut out the middle man and determine our own rules based on FATF recommendations.” According to the source, the UK is still planning to transpose the Fifth EU Money Laundering Directive, which has a deadline of January 2020.

The FCA, which hosts the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), the UK’s latest AML compliance watchdog, declined to comment.

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