EU Supervisors Seek More Power to Strip Licenses for AML Violations

The European Supervisory Authorities (ESAs) published a joint report on Thursday (June 1) advocating for the introduction in all relevant EU sectoral laws of a specific legal ground to revoke licenses for breaches of anti-money laundering/combating the financing of terrorism (AML/CFT) rules.

The European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EOIPA) and the European Securities and Markets Authority (ESMA), collectively known as ESAs, also called for relevant authorities to assess the adequacy of current arrangements and processes to ensure AML/CFT compliance was one condition for granting firms authorization or registration.

The report analyzed relevant legal frameworks affecting financial markets and payments, among other sectors, at the EU level and at the member state level. The report acknowledged that based on the responses provided by the competent authorities, these authorities could withdraw authorization from firms committing serious breaches of AML/CFT rules, based on EU or national law.

However, it is often the case that the legal provisions don’t provide for sanctions based solely on AML/CFT breaches, and cases need to be built using other legal bases, the ESAs argued. As a solution, the ESAs proposed sectoral laws be amended to insert an express legal ground specifically empowering them to withdraw the authorization or the registration solely for serious breaches of AML/CFT rules.

Regulators are also seeking to provide competent authorities with more powers to undertake a ML/TF risk assessment at the moment of authorization is first granted. While many authorities carry out this analysis at that time, there is no legal requirement to do that in many of the sectoral laws. That’s why the ESAs are also considering amending all sectoral laws to include that one of the conditions for granting authorization or registration is that the competent authorities should expressly consider the applicant’s exposure to ML/TF risks and be satisfied that the envisaged arrangements, processes and mechanisms enable sound and effective ML/TF risk management and compliance with AML/CFT requirements.

In the cryptocurrency sector, lawmakers are proposing new regulations. The report highlighted the need for the Markets in Crypto-Assets Regulation to integrate AML/CFT issues.

Despite the call for more powers to strip companies’ licenses for serious breaches of AML rules, the ESAs clarified that the decision to revoke licenses is a decision of last resort, subject to a discretionary and proportionality assessment. Besides, the identification of a serious breach is subject to a case-by-case assessment by the AML/CFT supervisor, the regulators said.

US Treasury Publishes AML/CFT Priorities

On May 13, the U.S. Treasury published its national strategy for combating terrorism and illicit financing. The 2022 Strategy highlighted four priorities and recommended 14 actions to enhance transparency in the U.S. financial system, modernize and strengthen the existing AML/CFT framework, and adapt regulatory and law enforcement tools to meet new and evolving challenges.

The four high-level priorities are: closing legal and regulatory gaps in the existing AML/CFT framework; revising AML/CFT compliance obligations for financial institutions to be more efficient and effective; enhancing the operational effectiveness of regulatory and law enforcement authorities in combating illicit finance; and leveraging technological innovation to mitigate risks.

Sanctions for breaching AML/CFT have also increased in the last year. One of the most recent examples comes from the Securities and Exchange Commission (SEC), which recently fined Wells Fargo $7 million for AML related violations. According to the SEC, due to Wells Fargo Advisors’ deficient implementation and failure to test a new version of its internal AML transaction monitoring and alert system, the company did not file at least 25 SARs related to suspicious transactions in a timely manner.

Read more: FinCEN Announces $140M Fine Against USAA FSB for Violations of Bank Secrecy Act