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EU’s Revised Guidelines for Risk-Based Supervision to Enhance AML/CFT Efforts

The European Banking Authority (EBA) has released revised guidelines for risk-based supervision under Article 48(10) of Directive (EU) 2015/849, aimed at strengthening the fight against money laundering and terrorist financing (AML/CFT). The updated guidelines aim to ensure consistent implementation of the risk-based supervision model across the EU.

Cooperation Key to Success

The revised guidelines emphasize the importance of cooperation among competent authorities and with other authorities responsible for supervising credit and financial institutions. This follows a European Commission report, which highlighted limited cooperation between authorities as a factor contributing to the failure of some European banks to implement robust AML/CFT frameworks.

Step-by-Step Approach

The risk-based supervision model consists of four steps:

Step 1: Identification of Risk Factors

  • Competent authorities are required to identify risk factors that affect their sectors and subjects of assessment.
  • The guidelines emphasize the need for sectoral risk assessments and provide clarification on the type of information and sources to use in identifying risk factors.

Step 2: Risk Assessment

  • Competent authorities must have a clear understanding of ML/TF risks present in their Member States.
  • The revised guidelines set out the main components of a risk assessment, distinguishing between individual risk assessments and sectoral/subsectoral risk assessments.

Step 3: Supervision

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

Step 4: Monitoring and Updating

  • In the final step, competent authorities are required to review their approach, including risk assessments and methodology, and make adjustments as necessary if inconsistencies or weaknesses are identified.

Implementation Challenges

The revised guidelines aim to address implementation challenges faced by competent authorities, such as:

  • Inconsistent interpretation of risk factors
  • Lack of sectoral risk assessments

By providing clear guidance on each step of the risk-based supervision model, the EBA aims to promote convergence of approaches among competent authorities across the EU.

Conclusion

The revised guidelines are expected to enhance AML/CFT efforts in the EU, strengthening the financial system’s resilience against money laundering and terrorist financing.