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The European Banking Authority (EBA) has published its third report on regulatory supervision of anti-money laundering/counter-terrorism financing (AML/CTF) risks among banks, finding much progress but still room for improvement.
After a year of research conducted in 2022, the EBA has found that European regulators have made “far-reaching changes” to their AML/CTF supervision of banks, resulting in “broadly effective controls”.
As part of its research, the EBA reviewed 12 regulators from nine EU member states. The staff spent a total of 45 days on site and met with 40 private-sector officials and nine financial intelligence units.
Over the course of the year, the regulator also collected and assessed more than 1,000 documents from the 12 regulators, and carried out further interviews remotely.
Each review focused on how the regulators assess money laundering and terrorist financing (ML/TF) risks associated with banks in their jurisdiction, and how these risk assessments inform their supervision practices.
At the end of each review, an EBA review team provided targeted feedback to the regulator to support their AML/CTF work.
“Thanks to the EBA’s ongoing efforts to foster a holistic approach to AML/CFT, many competent authorities have made tangible progress in tackling ML/TF risks,” it said.
“Most are on track to embed cooperation and information exchange in their supervisory processes,” the EBA added, and guidance was offered to realise this goal.
In January 2023, the regulator commenced its fourth and final of its AML/CTF implementation reviews.
After this round, it will publish a final report on the outcomes of all implementation reviews carried out from 2019 to 2024.
The EBA's implementation reviews are part of the transition toward the European Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA), a new agency that is likely to launch in 2026.
Achievements, but many challenges to overcome
Although the EBA said that all the regulators it reviewed had worked to implement a risk-based approach to AML/CTF, it also said that most of these regulators continue to experience “significant challenges”.
All the regulators had devoted “significant resources” to entity-level risk assessments, but it found that the results of these assessments were not always conducive to developing a reliable understanding of ML/TF risks.
For example, more than half of the regulators had not considered other non-entity-level risk factors, such as cross-border transactions or non-resident customers, or they had based their assessments on incomplete or poor-quality data.
Other shortcomings included lack of use of supervisory tools, such as manuals, training and sector-based guidance, to achieve adequate levels of challenge and intrusion.
With regard to information exchange, the EBA observed similar gains alongside similar setbacks.
For example, although all regulators had put in place mechanisms to exchange information with other authorities at home and abroad, almost half of these regulators were “not using them effectively”.
This meant that these regulators did not have access to important AML/CTF information concerning banks that operated within their jurisdictions.
A light touch on enforcement
The final area of the report focused on enforcement activity. In the EBA’s view, enforcement activity by the regulators it reviewed was not always “effective or dissuasive”.
In more than half of all cases, it said that the regulators’ sanctioning criteria, and their processes to determine the severity of an AML/CTF weakness or a breach, were “not sufficiently detailed or documented”.
In turn, these regulators were unable to pursue enforcement activity consistently, and banks were unable to take practical steps to manage ML/TF risks due to lack of consistency.
The EBA also found cases where the regulators were influenced by the risk of legal challenge by the banks under their supervision.
Where fines were imposed for non-compliant conduct, some of these fines were disproportionately low accordingly and were issued with little to no follow-up or restitution requirements.
Overall, the EBA concluded that although “weaknesses continue to exist”, all the regulators it reviewed in this third report were committed to strengthening their approach to AML/CTF supervision of banks.
It encouraged regulators to use the report and the guidelines referenced within it to assist them in preventing the use of the EU’s financial system for ML/TF purposes.
