On 3 March 2021, the European Banking Authority (EBA) issued its third Opinion on the risks of money laundering and terrorist financing affecting the European Union’s Financial Sector (the “Opinion”). Both the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) were also closely involved in the process.
Art. 6(5) of Directive 2016/849 (AMLD4) requires the EBA to issue, every two years, an opinion on the ML/TF risks affecting the EU’s financial sector, and is included in its new mandate to lead, coordinate and monitor the fight against ML/TF in the financial system at the EU level.
The Opinion is based on the analysis and the findings detailed in the annexed EBA Report (the “Report”). Both the Opinion and the Report cover i) the nine sectors included in the EBA’s scope of action (credit institutions, payment institutions, e-money institutions, bureau de change, investment firms, fund managers, credit providers other than credit institutions, life insurance undertakings and life insurance intermediaries) and ii) cross sectoral risks.
In drafting this Report EBA took into account:
- the view expressed by the competent authorities, engaged through a questionnaire related to ML/TF risks and supervisory activities carried out in 2018 and 2019;
- a combination of data analytics software (with the specific aim to realize a cross-sectoral assessment, including risk associated with virtual currencies, new technologies – FinTech and RegTech – terrorist financing, ML/FT risks arising from the withdrawal of the United Kingdom from the UE and de-risking);
- subject-specific expert reports, needed in order to support the analysis of the information received by the competent authorities.
The aim of the Opinion is to: a) assess how the ML/FT risk has evolved since the last Joint Opinion of the European Supervisory Authorities, released on October 2019; b) to describe the risks to which both credit and financial institutions and other various sectors are exposed (cross-sectoral risk); c) propose actions addressed to the competent authorities, the financial institutions.
EBA’s attention focused on the impact that new technologies and assets connected with digital finance (in a broad sense) produce in terms of increasing risks.
With particular regard to the cross-sectoral risks, EBA notes that some of them have been further increased since the Joint Opinion of 2019; this is the case for virtual currencies and FinTech/RegTech Firms. In these sectors the increase of the risks is mainly due to the limited transparency of the transactions and the identity of the end customer involved and to the provision of unregulated products and services, a lack of understanding of Fintech firm’s ML/TF obligations, and an over-reliance of some firms on outsourcing arrangements without adequate oversight.
In other cross-sectors the perception of the risks didn’t change in any relevant way; this is the case of terrorist financing risks arising from the withdrawal of the United Kingdom from the EU, risks arising from de-risking (i.e. the decision by firms to refuse or to terminate business relationships with some categories of customers they associate with higher ML/TF risk), risks arising from legislative divergence and divergent supervisory practices (above all in sectors in which EU regulations are very young, such as the regulation on crowdfunding platforms) and tax related crimes.
Lastly, with regard to the cross-sectoral risks, EBA draws attention to the risks associated with the COVID 19 pandemic, as an example of risk that can emerge unexpectedly and that can impact firms’ ability to ensure adequate AML/CFT compliance and competent authorities’ ability to ensure ongoing supervision of firms in the current context of restrictions on movement.
