EU Calls for Improved Credit, Financial Institution Supervision
The European Banking Authority (EBA) has published revised guidelines on risk-based supervision to strengthen anti-money laundering and combating the financing of terrorism (AML/CFT) frameworks across the European Union.
Consistency in Risk-Based Supervision
The EBA aims to promote consistency in the way competent authorities assess and supervise credit and financial institutions. Unfortunately, many competent authorities were interpreting and applying the existing risk-based supervision model inconsistently, leading to weaknesses in their AML/CFT frameworks.
Revised Guidelines
To address these issues, the revised guidelines provide additional guidance on each of the four steps involved in implementing the risk-based supervision model:
- Identifying Risk Factors: Identifying potential risks that could lead to money laundering and terrorist financing
- Assessing ML/TF Risks: Assessing the likelihood and impact of ML/TF risks associated with credit and financial institutions
- Supervising Subjects of Assessment: Supervising credit and financial institutions to ensure they have effective AML/CFT systems and controls in place
- Monitoring and Reviewing the Model: Monitoring and reviewing the risk-based supervision model to ensure its effectiveness
Cooperation Among Authorities
The guidelines emphasize the importance of cooperation among competent authorities and with other authorities responsible for supervising credit and financial institutions. This is in line with the European Commission’s Post-Mortem Report, which identified limited cooperation as one of the factors contributing to failures in implementing robust AML/CFT frameworks by some European banks.
New Definitions
The revised guidelines introduce new definitions for terms such as:
- Ad Hoc Inspection: An inspection carried out on an ad hoc basis
- AML/CFT Returns: Reports submitted by credit and financial institutions to competent authorities
- Follow-Up Inspection: A follow-up inspection to ensure that issues identified during the initial inspection have been addressed
- Full-Scope On-Site Inspection: A comprehensive on-site inspection of a credit or financial institution
These definitions aim to promote convergence of approaches among competent authorities across the EU.
Sectoral Risk Assessments
The guidelines require competent authorities to carry out sectoral risk assessments, develop a good understanding of ML/TF risks associated with credit and financial institutions, and assess the effectiveness of AML/CFT systems and controls put in place by these institutions.
Strengthening the EU’s AML/CFT Framework
The revised guidelines are designed to help competent authorities implement a robust risk-based supervision model that is effective in addressing ML/TF risks. By promoting consistency and cooperation among authorities, the guidelines aim to strengthen the EU’s AML/CFT framework and protect the financial system from the threats of money laundering and terrorist financing.