The European Commission has presented four draft laws to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CTF) rules following several high-profile supervisory failures since 2018, including those related to the Danske Bank scandal. The package (Beating Financial Crime) aims to create a more consistent framework, also taking into account new and emerging challenges linked to technological innovation. For Mairead McGuiness, the EU’s Financial Services Commissioner, the proposed measures will “significantly ramp up efforts to stop dirty money being washed through the financial system.” 

According to Europol, the scale and complexity of money laundering activities in Europe have been previously underestimated, with the value of suspicious transactions likely to be equivalent to 1.3% of EU GDP. In its latest threat assessment report, Europol points to the existence of a parallel underground financial system which processes transactions and payments isolated from any oversight. The Commission’s proposals also follow a recent special audit by the European Court of Auditors which assessed EU efforts to fight money laundering in the banking sector as being fragmented across several bodies, with insufficient implementation of existing laws at national level.

A new EU AML Authority

Essential to the package is the proposed creation of a new central body to enhance cooperation among national Financial Intelligence Units (FIUs) and ensure consistent and correct application of EU rules across the bloc. To do so, the EU Anti-Money Laundering Authority (AMLA) will directly supervise some of the riskiest financial institutions with operations across multiple EU countries, while establishing a single integrated system of AML/CFT supervision and coordinating supervisors of non-financial entities. The European Banking Authority, which has only recently been given enhanced responsibility for leading and coordinating the EU financial sector’s AML/CTF activities, will lose these functions to AMLA. 

With an expected annual budget of €45m and headcount of some 250 employees, early interest in hosting AMLA has already been expressed by Paris, Berlin and Rome. The body is due to be operational in 2024 with direct supervisory activities starting from 2026.

A single EU AML/CFT rulebook

Building on the existing EU AML/CTF framework of laws, the Commission wants to see greater harmonisation of rules, particularly when it comes to customer due diligence and beneficial ownership. The proposed single rulebook would also harmonise the powers and tasks of supervisors and FIUs. Measures to connect existing national registers of bank accounts should facilitate the ability of FIUs and law enforcement agencies to access information on bank accounts and safe deposit boxes.

The Commission also proposes to extend the list of obliged entities, required to apply AML/CFT measures to also include some crowdfunding service providers, investor residence schemes as well as mortgage credit intermediaries and consumer credit providers that are note financial institutions. Financial institutions and intermediaries including accountants, lawyers and real estate agents remain on the list of obliged entities. 

The single rulebook will make AML/CFT rules and requirements directly applicable to entities falling under scope, without prior transposition into national law. Detailed technical standards will be eventually prepared by AMLA although EU countries could still require additional sectors at national level to apply AML/CFT rules. The full rulebook is expected to be in place and apply by the end of 2025.

Extending AML/CFT rules to the crypto sector

Responding to perceived gaps in the current scope of EU AML/CFT rules, the proposed reform will extend the rules to the entire crypto sector, thereby obliging all service providers to conduct due diligence on their customers. Amendments to existing legislation seek to ensure full traceability of crypto asset transfers, such as Bitcoin, while prohibiting anonymous crypto asset wallets.

€10,000 limit on cash payments in the EU

The Commission wants an EU-wide limit of €10,000 on large cash payments to limit criminals’ ability to launder money via hard-to-detect transactions. Two-thirds of EU countries already have cash limits in place, although the amounts vary from €500 in Greece to just over €10,000 in the Czech Republic. Countries will be able to keep lower limits at national level.

Black-lists and grey-lists of third countries

A revised approach to third countries is set out by the Commission to ensure a more harmonised approach at EU level while enabling more granular mitigating measures to external risks. In particular, the Commission proposes to identify third countries onto a ‘black-list’ or a ‘grey-list’ according to the determinations made by the Financial Action Task Force (FATF). Following the listing, the EU will apply measures proportionate to the risks posed by the country. The Commission may also list countries not listed by the FATF, but which are considered to pose specific threats to the EU’s financial system.

What happens next?

The draft laws will now need to be scrutinised and agreed to by the European Parliament and Council in a process that could take upwards of 12 months. Feedback on the proposed package of measures can be submitted to the Commission by 20 September. 

ICAEW AML resources 

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