Although the AMLA is yet to receive parliamentary approval, the European Commission has already created a task force to set it up, and multiple countries are vying to host the new authority’s headquarters.
The AMLA is set to become a major employer with 500 staff and an annual budget of €400 million, which is exactly double the original staff proposed and nearly nine times the original budget of €45.6 million.
The financial boost follows both Transparency International and the European Parliament highlighting that the original budget was insufficient to fully support AML investigations and coordination efforts.
The authority now faces a colossal task to become fully staffed by 2025, and start direct supervision of financial institutions in 2026 as planned.
A bulging remit
The establishment of the AMLA is the response to the European Parliament expressing strong concerns about fragmented AML regulation and supervision. It highlighted the need for more effective cross-border cooperation between authorities, particularly between and within financial intelligence units (FIUs).
The new authority is part of a package of measures, first proposed in 2021, that aim to defragment this framework, and include introduction of a single rulebook.
AMLA will become the centre of an integrated system that includes national authorities. Its main goals will be to harmonise supervisory practices in financial and non-financial sectors; coordinate FIUs and other institutions; and take over direct supervision of high-risk and cross-border financial entities from local authorities.
But this remit has been growing and now also includes supervising crypto assets, and potentially non-fungible tokens (NFTs); and perhaps even enforcing economic sanctions.
A January 2023 European Parliament report stated that the authority will also periodically review national supervisors to ensure they have adequate resources and powers; support supervisory education, practice, and methodology, in line with a risk-based approach. It will also provide FIUs with IT and artificial intelligence tools and services for secure information sharing, including through hosting on FIU.net.
Will there be an EU FIU?
The European Parliament has invited the EC to consider creating an EU FIU, although there has been little further discussion on this idea since the initial request.
The January report makes it clear that AMLA itself will not be a FIU, but will provide a hub for enhanced support and cooperation between national FIUs and assist FIUs’ joint case analyses to provide stable hosting and updates on FIU.net.
The scale of the challenge
The European Commission has previously estimated that transactions involving money-laundering account for about 1.5% of gross domestic product in the EU, or €133 billion. Most of this is believed to relate to cross-border activities – especially for larger cases.
However, scandals have shown this estimate is far short of the actual figure. One case alone – the Estonian branch of Danske Bank – involved €200 billion of dirty money; and another investigation involving Deutsche Bank involved an estimated $80 billion (€73 billion) of money filtered through laundromats.
European lawmakers have beefed up AML rules in response to these and many other scandals at EU banks. But in recent years, exposes such as the Pandora Papers have demonstrated how easy it still is to launder dirty money into the EU’s legal and financial system.
A recent study by University of Cambridge and University of Texas also revealed some financial institutions are still not complying with AML rules and “completely fail to discriminate between low and extremely high-risk customers – the opposite of what the rules require.”
How direct regulation will work
The hope is that direct supervision by a powerful EU-wide watchdog will start halting this tide of criminality.
Under current proposals, AMLA will be able to impose binding decisions and pecuniary sanctions. It will directly supervise around 40 to 45 high-risk and financial sector entities, including crypto asset service providers, that meet the selection criteria. The authority will select these firms in 2025, and review them every three years. On-site inspections will feature regularly.
National supervisors will continue to directly oversee entities not on that list. But AMLA will help national supervisors enforce the single rulebook effectively and ensure homogenous, high-quality supervisory standards and risk assessments.
AMLA will have the power to require financial and non-financial supervisors to act, and to instruct them on how to exercise their powers. But if national supervisors persistently fail in these duties, the EU-wide authority will have the power to take a failing entity under direct supervision.
AMLA will also be able to require entities to enhance their AML compliance frameworks – such as reinforcing internal procedures to identify high-risk clients, and changes to governance structures, such as removing managers.
It will also develop binding templates and standards for reporting suspicious activity; conduct peer reviews of non-financial supervisors; and investigate possible breaches or incorrect application of the law by supervisors, including public authorities.
How automated technology can help ensure you stay compliant
AMLA’s hugely widened remits, responsibilities and resources will likely mean a significant increase in pressure on already over-burdened compliance professionals. This strengthens the need to make all compliance processes as efficient as possible – and to ensure you can explain your compliance actions clearly.
Flexible, scalable, and auditable technology are now vital in ensuring businesses can tackle these challenges, by helping to conduct enhanced due diligence more efficiently, while explaining the logic behind every new customer (KYC) and AML decision.
To discover how the latest automated technology can help ensure your business stays compliant on the face of increasing pressure, request a discovery call today.