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The European Banking Authority (EBA) has unveiled its central database for anti-money laundering and counter-terrorist financing (AML/CTF).
EuReCa, the EU’s reporting system for material AML/CTF weaknesses, has launched as part of plans to coordinate efforts by competent authorities and the EBA to prevent and counter the risks of money laundering and terrorist financing across the trading bloc.
The database will contain information on material weaknesses in individual financial institutions in the EU that competent authorities have identified.
Having now been approved by the European Commission, the EBA’s guidelines for the database show particular interest in defining what a “weakness” should be regarded as.
“For the materiality of a weakness to be determined, there is a need to set out a general definition and a non-exhaustive list of criteria to specify that definition further,” said the EBA in its set of regulatory technical standards (RTS).
This is in order to achieve a harmonised approach in the application of this general definition, while also ensuring that it captures and takes into account specific contexts in which the definition may be applied, the EBA guidelines suggest.
The EBA has set out how a “material weakness” should be defined to ensure that all so-called weaknesses are reported to the database at an early enough stage for intervention.
This definition encompasses not only weaknesses that “reveal” shortcomings in AML supervision but also those that could lead to a significant failure in compliance with applicable AML/CTF-related requirements, instead of being dependent on whether the failure has actually occurred yet.
Information should, therefore, be reported to the database on a best effort basis by those competent authorities that do not possess the same level of AML/CTF information and expertise as the supervisory authorities designated as competent under the 4th Anti-Money Laundering Directive.
Meanwhile, competent authorities will also use the database to report on the measures that they have imposed on financial institutions to rectify issues identified.
Examples of material weaknesses that the EBA has previously highlighted include a lack of adequate AML/CTF policies and procedures, including the absence of transaction monitoring and a lack of policies and procedures for high-risk customers.
EuReCA also includes internal audit findings identified by a prudential authority during an on-site inspection where senior management of the firm appeared to have been informed, yet decided not to remediate.
The EBA will use information from EuReCA to inform its view of economic crime risks that are affecting the EU’s financial sector.
Moreover, the institution will share information from EuReCA with competent authorities as appropriate, to support them at all stages of the supervisory process and, in particular, should specific risks or trends emerge.
In this regard, EuReCA will act as an early warning tool, which will help competent authorities to act before money laundering/terrorism financing risk crystallises.
Although more EU harmonisation has been a welcome factor among AML experts, some will be sceptical regarding the EBA’s role.
In the past, the EBA has garnered plenty of criticism, especially in light of what have been perceived as failures to discipline competent authorities.
On February 18, 2019, the EBA opened a formal investigation into a possible breach of EU law by the Estonian Financial Supervision and Resolution Authority (EFSA) and the Danish Financial Supervisory Authority (DFSA), following the high-profile Baltic money laundering scandal.
Just two months later, the banking watchdog had closed its formal investigation following a vote by the EBA's Board of Supervisors, which rejected a proposal for a breach of Union law recommendation.
This Board of Supervisors includes representatives from the EU’s national competent authorities, and only one, the Banque de France, voted to take action. Others either voted against the proposal or abstained, including Estonia and Denmark, effectively meaning that the two regulators helped vote down a claim that they had broken EU law.
Since then, the EU has released a new, much more harmonised, regulatory document, which includes a proposal to create a centralised Anti-Money Laundering Authority (AMLA), which would be independent from the national competent authorities.
