Over the past year, the European Banking Authority (EBA) has reviewed and published a significant number of guidelines relating to anti-money laundering (AML) practices. These guidelines cover, for example, the onboarding of remote customers, the application of risk factors and the role and responsibilities of compliance officers. A recent example is the guidelines that came into force on 3 November 2023. What is the impact of the EBA guidelines on the AML practices of banks and other financial institutions? And how do they relate to national legislation?
The basis for EBA’s mandate is Regulation (EU) No 1093/2010 (the “Regulation”). The Regulation provides for the establishment and tasks of the EBA and constitutes the legal basis for the functioning of the supervisory authority. The Regulation has direct effect in all EU Member States.
EBA’s mandate includes ensuring the stability and integrity of the European financial sector. EBA’s powers include the development of technical standards, which it publishes in the form of binding guidelines and recommendations, including AML best practice guidelines.
In addition, EBA focuses on the harmonisation of EU regulations and strives for greater convergence among European regulators. The EBA even has the power to overrule a national supervisor if it fails to act on the EBA’s instructions to the supervised institution and if European rules are not correctly applied.
Following an amendment to the Regulation in 2019, the EBA is solely responsible for leading, coordinating and monitoring AML/CFT efforts across the European financial sector. This has given the EBA cross-sector competence with regard to AML supervision. In terms of AML guidelines, the EBA’s mandate includes:
Articles 4 and 16 of the Regulation require competent authorities and financial institutions to use their best endeavours to comply with EBA guidelines and recommendations. The guidelines and recommendations are therefore of a mandatory nature. However, the guidelines are not directly binding; this is subject to a ‘comply-or-explain’ procedure for institutions or supervisors, as defined in the second sentence of Article 16(3) of the Regulation.
In addition to the ‘best endeavours’ obligation, there are two other factors that support this:
EBA can make definitions from the Fourth Money Laundering Directive, and thus indirectly the Wwft, more specific. This will leave less room for financial institutions’ own interpretation of the Wwft. Financial institutions will need to take the guidance into account, for example by incorporating it into their AML policies and procedures.
Take, for example, the definition of ‘customer’. The Wwft defines a client as follows (Article 1(1)): “a natural or legal person with whom a business relationship is entered into or with whom a transaction is carried out“.
EBA provides a further interpretation of the term ‘client’ for the benefit of funds and fund managers. According to the EBA guidelines (EBA/GL 2021/02, paragraph 16.14), the term client also includes financial intermediaries acting on behalf of third parties.
This means that, according to EBA, funds and fund managers should, in certain cases, treat financial intermediaries as a client and not as another business relationship or supply channel of a client. This has implications for policies, procedures and the scope of client due diligence.
National supervisors participate in a number of working groups within the EBA in the form of so-called ‘Standing Committees’. In these ‘committees’, for example, (draft) guidelines are developed and finalised. These guidelines are then formally adopted by EBA’s Board of Supervisors, which includes the chairpersons of the national supervisory authorities. The Standing Committee on AML/CFT is an example of this.
Another example of cooperation between the EBA and national supervisors is EBA’s coordination of the exchange of information between national supervisors in the context of joint AML supervision of a cross-border financial institution.
In practice, there is growing concern that EBA, by focusing on drafting such detailed guidance, is to some extent taking on the role of legislator. However, financial institutions also clearly need clear and consistent standards. Maintaining a balance between regulators and legislators remains crucial in shaping regulation. This balance is essential to ensure both the effectiveness of supervision and the practicality of regulation.
Projective Group is happy to assist financial institutions with the interpretation and implementation of new laws and regulations, such as the EBA Guidelines. For example, we can help by performing a gap analysis. This will show you how far your organisation already complies with the requirements of the Wwft and the EBA guidelines and recommendations, and what steps you need to take to be fully compliant.
If you want to learn more about AML/CFT, you can follow the AML/Wwft e-learning courses through our training institute, The Ministry of Compliance.