Legal Updates

On 20 July 2021, the European Commission published a set of four legislative proposals with the aim of strengthening the EU's anti-money laundering and countering the financing of terrorism (AML/CFT) rules (AML Legislative Package). The proposals also aim to create a more consistent and harmonious AML/CFT framework across the EU.

Background

The publication of the AML Legislative Package follows the launch of the European Commission’s action plan designed to strengthen the EU’s AML/CFT framework (Action Plan) which was adopted on 7 May 2020. You can read more about the Action Plan in our previous briefing, which can be accessed here.

The AML Legislative Package consists of four legislative proposals, which we describe below.

A new EU Authority for AML and CFT

A new EU Regulation will establish the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA). The purpose of AMLA is to address the current shortcomings in AML/CFT supervision in the EU, in particular the problem of significant variations in resources and practices across Member States.

AMLA will support a more integrated AML/CFT supervisory system, coordinating national competent authorities (NCAs) with the aim of improving the enforcement of the single rulebook¹ and ensuring that supervisory standards are consistent and of a high quality. AMLA will play a role in improving the exchange of information and cooperation between national Financial Intelligence Units (FIUs) and will directly supervise certain selected large cross-border financial entities that bear a high AML/CFT risk.² AMLA will also have powers to draft regulatory and implementing technical standards, guidelines and recommendations.

AMLA will be established at the beginning of 2023 and will be operational by the beginning of 2024. It will reach full resourcing at the end of 2025, and direct supervision of selected entities will begin in early 2026.

A Single EU Rulebook for AML/CFT

A second proposed Regulation transfers provisions from the Fourth Money Laundering Directive (Directive (EU) 2015/849) (AMLD4) to a Regulation, which will be directly applicable in all EU Member States. This is intended to address the European Commission’s concern that although the requirements of AMLD4 are far-reaching, the lack of direct applicability has led to fragmentation in their application.

The proposed Regulation also makes a number of changes of substance. It streamlines beneficial ownership requirements by introducing more detailed rules on the identification of beneficial owners and introduces new requirements in relation to nominees and foreign entities. Detailed provisions on the identification of the customer and on the verification of the identity of the customer are also included, together with clarifications on internal policies, controls and procedures that obliged entities are required to have in place.

AML/CFT requirement to be extended to the entire crypto-asset sector

The scope of entities subject to AML/CFT requirements will also be extended, most notably to include a wider range of crypto-asset service providers, unregulated crowdfunding service providers, and mortgage or consumer creditors/credit intermediaries that are not credit institutions or financial institutions. With regard to crypto-assets, the proposed Regulation will extend the AML/CFT rules to the entire crypto sector, obliging all service providers to conduct due diligence on their customers. This is intended to ensure full traceability of crypto-asset transfers and allow for prevention and detection of their possible use for money laundering or terrorism financing. In addition, anonymous crypto-asset wallets will be prohibited.

A sixth Directive on AML/CFT, repealing AMLD4

A proposed Directive complements the proposed AML/CFT Regulation discussed above. This Directive will contain provisions that will be transposed into national law, such as rules on national supervisors and FIUs in Member States. The European Commission recognises the need for Member States to have flexibility in how their institutional AML/CFT system is organised at a national level. The proposed Directive reiterates the relevant provisions of AMLD4 addressing these issues.

In addition, the proposed Directive makes a number of changes of substance in order to bring about greater convergence in the practices of NCAs and FIUs. In particular, the proposed Directive clarifies the powers and tasks of FIUs and supervisors, introduces common risk-categorisation tool in order to harmonise the approach to risk-based supervision, clarifies the powers of the entities managing beneficial ownership registers, provides for the cross-border interconnection of bank account registers and contains provisions supporting cooperation between NCAs, FIUs and other competent authorities.

A revised Regulation on Transfers of Funds to trace transfers of crypto-assets

A revision of the Regulation on Transfers of Funds (Regulation (EU) 2015/847) is proposed to extend its scope to transfers of crypto-assets. The Regulation on Transfers of Funds was adopted in order to ensure the full traceability of transfers of funds with information on the payer and payee. The proposed Regulation extends the scope of the Regulation to include transfers of crypto-assets made by crypto-asset service providers. The crypto-asset service provider of the originator of the transfer will be required to ensure that the transfer of crypto-assets is accompanied by certain information. Conversely, the crypto-asset service provider of the beneficiary must implement effective procedures to detect whether the information on the originator is included in, or follows, the transfer of crypto-assets.

Next Steps

The AML Legislative Package will now be discussed by the European Parliament and the Council.

The European Commission is seeking the views of stakeholders on each of the proposed legislative measures. The consultation period closes on 7 October 2021.

The text of the proposed AMLA Regulation can be accessed here.

The text of the proposed new AML/CFT Regulation can be accessed here.

The text of the proposed Directive can be accessed here.

The text of the proposed revised Regulation on Transfers of Funds can be accessed here.

For further information on any of the issues discussed in this publication, please contact Keith Waine or your usual contact in Dillon Eustace.

1 The proposed Regulation on AML/CFT, a proposed sixth Directive on AML/CFT and the recast Regulation on Transfers of Funds collectively form the EU ‘Single Rulebook’ on AML/CFT, the establishment of which was included as a priority in the European Commission’s Action Plan (Pillar 2).

2 Credit institutions established in at least seven Member States, and other financial institutions that operate in at least ten Member States, will be assessed and selected according to a methodology to be published by the European Commission.