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Crypto-assets and gambling are high on the agenda for the EU’s latest supranational risk assessment, which warns beneficial ownership rules are still lagging.
The European Commission has adopted the Supranational Risk Assessment (SNRA), which is a tool to help member states identify and address money laundering and terrorist financing risks.
The SNRA considers that credit and payment institutions, currency exchange services, e-money institutions and credit providers (other than credit institutions) appear to be most vulnerable to risks arising from weaknesses in anti-money laundering and counter-terrorist financing (AML/CTF) controls.
Meanwhile, the commission has said that risks associated with crypto-assets call for ensuring not only a high level of consumer and investor protection and market integrity, but also for measures against market manipulation and to prevent ML/TF activities.
“Financial stability and monetary policy risks that could arise from a wide use of crypto-assets and Distributed Ledger Technology (DLT) based solutions in financial markets must also be addressed,” the report warns.
For the first time, the commission’s work defines exchangeable tokens used in video games as crypto-assets and, according to the SNRA, money launderers may use the digital sale of these tokens in the same way they use physical sales. It is recommended that their threat assessment should follow the same AML/CTF regime.
The concerns regarding crypto align with the EU’s justice agency findings last month, which revealed a jump in crypto-related money laundering cases.
Gambling
The gambling industry has also come under particular scrutiny from Brussels in the report, despite traditionally being left to national authorities. However, increased concerns around illicit proceeds have led to greater attention from EU institutions.
Large gambling hubs in Europe, such as Malta and Gibraltar, have both got into trouble with the Financial Action Task Force in recent years.
“The gambling sector is characterised by fast economic growth and technological development, with a strong growth of the online sector during and after the COVID-19 pandemic,” the commission said, adding that a number of competent authorities reported that risks arising from online gambling have increased further since the publication of the previous SNRA in 2019.
The report recommends that competent authorities should put in place programmes to raise awareness among online gambling operators of the emerging risk factors that may affect the vulnerability of the sector, including the use of anonymous e-money, virtual currencies and the emergence of unauthorised online gambling operators.
Meanwhile, it is suggested that feedback from financial intelligence units (FIUs) on the quality of the suspicious transaction reports would improve the reporting and the use made of the information provided.
The report also recommends that national authorities should ensure adequate training focusing on appropriate risk assessments of relevant products/business models for staff, compliance officers and retailers.
Payments and e-money
Payment institutions, according to the commission, present significant inherent risks and are still rated as poor or very poor. Here, the SRNA recommends enhanced on-site supervision of the sector.
By contrast, for e-money institutions, the commission argues that full scope, on-site inspections may not be necessary.
Instead, on-site thematic reviews to ensure adequate supervisory coverage of a sufficiently large number of firms are recommended
The report acknowledges that although most recommendations of the previous assessments (from its 2019 report) have already been implemented, it also underlines the fact that weaknesses in identifying beneficial ownership continue to remain a considerable threat to the EU’s financial services sector.
This is because anonymity remains a critical vulnerability for all sectors and activities.
“As long as public registers are not fully implemented and difficulties in accessing information persist, the flow of dirty money remains a real risk for the EU as a whole,” the report warns, calling on member states to fully implement the provisions set out in the anti-money laundering directives related to beneficial ownership registers.
The commission is currently assessing the implementation of national beneficial ownership registers through dedicated questionnaires in the context of its horizontal assessment of the implementation of the 5th Anti-Money Laundering Directive.
Moreover, in view of the Russian aggression on Ukraine, member states have been advised to ensure that registers include as much comprehensive information as possible.
The commission published its first SNRA in 2017 and the second in 2019.
The 2022 SNRA is made up of two documents — this report and a detailed staff working document — which read together provide a comprehensive mapping of risks on all relevant areas, as well as the necessary recommendations to counter them.
