European Banking Authority Identifies Challenges in Assessing Money Laundering Risks

The European Banking Authority (EBA) has stated that supervisors across the EU still face challenges in assessing money laundering and terrorist financing (ML/TF) risks.

The EBA's review of competent authorities' approaches to combating ML/TF risks in the banking sector revealed that many authorities did not effectively use their risk assessments to inform their supervisory strategies and inspection plans.

The EBA highlighted the lack of formalized processes and targeted training for anti-money laundering and counter-terrorism financing (AML/CFT) supervisors, which resulted in missed opportunities for early intervention. The authority stressed the need to strengthen approaches to tackling ML/TF risks and provided guidance to competent authorities on necessary steps to improve their practices.

According to the EBA, despite some progress in the fight against money laundering and terrorist financing, there are areas that require improvement in AML/CFT supervision of banks. While certain competent authorities within the EBA's sample have implemented significant changes, achieving effective AML/CFT supervision, the report emphasized the importance of cooperation and information exchange in supervisory processes.

The report from the EBA stated, "Thanks to the EBA's ongoing efforts to foster a holistic approach to AML/CFT, many competent authorities have made tangible progress in tackling ML/TF risks through prudential supervision and most are on track to embed cooperation and information exchange in their supervisory processes."

The EBA's findings and recommended actions are intended to assist all competent authorities responsible for addressing ML/TF risks in credit and financial institutions across the EU. The report aims to support their ongoing efforts in preventing the misuse of the EU financial system for illicit purposes.

The EBA has the authority to conduct peer reviews, investigate potential breaches of EU law, and carry out staff-led implementation reviews of risk assessments to assess the responses of competent authorities to compliance challenges.

The EBA's review process includes staff-led, qualitative assessments of competent authorities' approaches to AML/CFT supervision of banks. These assessments identify areas for improvement and provide targeted feedback and specific recommendations to each competent authority.

The review marks the fourth and final round of implementation reviews of competent authorities, scheduled for 2023. The EBA will publish a final report, assessing the progress made since 2019 in addressing ML/TF risks.

The findings from the EBA's review highlight the ongoing need for enhanced efforts and cooperation among competent authorities to effectively combat money laundering and terrorist financing in the EU banking sector.

By fLEXI tEAM