December 2023
On 13 December 2023, EU lawmakers announced that they had reached a provisional agreement on legislation to create a new EU Anti-Money Laundering Authority (AMLA) and on elements of the wider money-laundering package. This was the culmination of months of intense ‘trilogue’ negotiations between the European Commission (EC), European Parliament (EP) and EU governments (Council) on sweeping reforms to EU rules on anti-money laundering and countering the financing of terrorism (AML/CFT).
The EC first proposed its AML Reform Package in 2021, with the aim of improving the detection of suspicious transactions and activities and closing loopholes used to launder the proceeds of crime or finance terrorist activities through the financial system. The most eye-catching element of the package was the establishment of the new EU AMLA to raise AML supervision standards and coordinate the fight against illicit finance across Europe.
Figure 1: AML Package Summary
The EC’s 2021 AML Package consisted of four key pillars:
To be the centrepiece of a new pan-EU AML/CFT supervisory system, with responsibility for directly supervising the most high-risk institutions, and for developing technical standards to specify the details of the new AML/CFT rulebook
To tighten and harmonise AML/CFT rules (e.g. on beneficial ownership registers, customer due diligence and AML governance) across the EU
To update the rules and framework concerning national AML/CFT supervisors and Financial Intelligence Units (FIUs)
To extend existing rules on traceability of transactions to crypto-assets (agreed in April 2023)
Destination in sight?
Full details of the trilogue compromise have yet to be disclosed, and it may be several weeks before draft legislation is published. But the key features of the agreement are:
- AMLA will directly supervise up to 40 financial institutions deemed to pose the highest risk of money laundering or terrorist financing, including at least one institution from each EU member state. This widens the scope of AMLA direct supervision from the original EC proposal, which was for AMLA to supervise 12 to 20 institutions.
- Institutions potentially subject to direct AMLA supervision will be – at least – those active in at least 6 EU countries and will include crypto asset service providers. AMLA will draw up the selection criteria for financial entities to be directly supervised.
- Direct supervision will be conducted by joint supervisory teams (JST) led by AMLA and including staff from the national AML authorities in countries where each institution is active. This follows the model for European Central Bank (ECB) supervision of the most significant banks in the European Banking Union.
- As well as directly supervising the highest-risk institutions, AMLA will coordinate supervision of other financial entities by national authorities. AMLA will have the power to impose binding settlements in the event of disagreement between national authorities.
- AMLA will also coordinate the work of national Financial Intelligence Units (FIUs), including supporting joint analysis and hosting the FIU information sharing platform FIU.net
Given the connections between AMLA, the enforcer, and the rules it will enforce, the co-legislators also reached a provisional agreement on elements of the wider money-laundering package. Negotiators agreed on several horizontal points that would harmonise anti-money laundering and anti-terrorist financing rules and help member states to apply them in a more uniform/consistent way.
The trilogue agreement leaves one issue outstanding: the location of AMLA’s headquarters. This will be decided in a separate negotiation between the EC, EP and Council. This is the first time that an EU agency’s location has been decided in this way (previously, EU agency locations were agreed among EU governments with little role for the EP), and follows a July 2022 ruling by the European Court of Justice that these decisions be made under the standard legislative procedure. Involving MEPs in the decision complicates the process and makes the outcome more difficult to predict. It also increases the risk of delay, even as the window of time remaining to pass legislation before the 2024 European elections narrows.
Nine cities have applied to host AMLA under a process launched by the EC in September: Brussels, Dublin, Frankfurt, Madrid, Paris, Riga, Rome, Vienna and Vilnius.. But despite much media speculation, it is impossible at this stage to predict which city will ultimately be chosen.
AMLA’s First Steps
Following the trilogue agreement, and in anticipation of a deal on AMLA’s location, legal texts of the AMLA Regulation and the rest of the AML Package will be prepared for formal sign-off by the EP and Council early next year. AMLA would then go live in the course of 2024, and will likely begin direct supervision of ‘high-risk’ institutions in 2026/2027.
Given how few financial entities it will directly supervise, however, we expect AMLA’s principal impact to come indirectly, via its influence on national authorities (who will continue to lead supervision of the vast majority of EU financial institutions) and AMLA’s power to issue Implementing or Regulatory Technical Standards, which are directly binding also to non-directly supervised financial entities. To succeed, AMLA will need to use its rule-making and coordination powers to harmonise supervisory practices and drive up standards across the EU.
This points to two key priorities as the new agency starts operating:
- Developing Technical Standards: the EU AML coordination group has already identified 80 Implementing or Regulatory Technical Standards (ITS/RTS) required to specific the details of the new single AML/CFT rulebook
- Establishing Supervisory Policies and Processes: including building up Joint Supervisory Team structures, establishing modes of cooperation with national AML authorities and formulating Memoranda of Understanding on cooperation with other EU and third-country agencies.
AMLA’s initial policy work will likely be informed by a horizontal survey of existing AML rules and supervisory practices across Europe. AMLA will also draw on the ECB’s experience in setting up the Single Supervisory Mechanism: a number of senior ECB staff have already been seconded to the EC’s AMLA Task Force that is preparing the ground for the new authority.
How banks / financial entities can get prepared
The start of AMLA supervision may seem a long way off – and it is certainly too early to be sure which will be the 40 institutions subject to direct AMLA supervision.
But banks / financial entities – both potentially directly supervised but also especially the vast majority being indirectly supervised but nevertheless directly affected by AMLA’s ITS/RTS - should prepare themselves for tougher AML regulatory standards and more intrusive supervision as the new EU AML regime comes into effect. Key preparatory steps include detailed country-by-country analysis of existing policies and practices against the new requirements, and the establishment of coherent, consolidated AML controls and governance covering all EU business lines.
While not itself an AML supervisor, the ECB recognizes that effective collaboration between prudential and AML supervisors will be key to the success of both their missions, and that it too will have a role to play in combatting illicit finance. In recent years the ECB has established a network for cooperation and information sharing with around 50 European AML authorities, and set up an internal AML coordination function to act as an in-house centre of expertise and point of contact on AML-related issues. The ECB has also updated its supervisory approach to money-laundering risks as part of its Supervisory Review and Evaluation Process (SREP), feeding into SREP scores and hence Pillar 2 capital requirements. AML will not, therefore, simply be left completely to AMLA, but will continue to be part of the ECB’s supervisory scrutiny of banks’ risk management and governance.
