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European Banking Authority Guidelines for Risk-Based Supervision

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The European Banking Authority (EBA) has released guidelines for risk-based supervision (RBS) under Article 48(10) of Directive (EU) 2015/849. The report outlines amendments to previous guidelines, focusing on the four steps of the RBS model: identification of risk and mitigating factors, risk assessment, supervision, and monitoring and updating.

Step 1: Identification of Risk and Mitigating Factors

Competent authorities should identify sector-specific risk factors and use the EBA’s AML/CFT Risk Factors Guidelines to inform their view. This includes conducting sectoral risk assessments, as most competent authorities previously used a generic set of risk factors.

  • Identify sector-specific risk factors
  • Use the EBA’s AML/CFT Risk Factors Guidelines to inform the view
  • Conduct sectoral risk assessments

Step 2: Risk Assessment

Competent authorities must have a clear understanding of ML/TF risks in their Member States, which forms the basis for a risk-based approach. The revised guidelines clarify that competent authorities’ risk assessments should be sectoral and subsectoral.

  • Have a clear understanding of ML/TF risks in Member States
  • Conduct sectoral and subsectoral risk assessments

Step 3: Supervision

A risk-based approach to supervision involves tailoring supervisory actions to address specific risks within sectors or subjects of assessment. Competent authorities should assess the effectiveness of AML/CFT systems and controls, rather than merely testing compliance with prescriptive requirements.

  • Tailor supervisory actions to address specific risks
  • Assess the effectiveness of AML/CFT systems and controls

Step 4: Monitoring and Updating of the RBS Model

Competent authorities must review their approach, including risk assessments and supervisory strategy, to identify inconsistencies or weaknesses. Adjustments should be made where necessary.

  • Review the approach, including risk assessments and supervisory strategy
  • Identify inconsistencies or weaknesses
  • Make adjustments as necessary

The revised guidelines aim to address weaknesses identified by FATF and EBA related to risk-based supervision in the EU, providing a more detailed framework for competent authorities to follow.