Introduction
The establishment of the European Anti-Money Laundering Authority (AMLA) represents a significant milestone in the EU’s ongoing efforts to combat financial crimes. Following identified weaknesses in the AML/CFT framework within the European Union, AMLA emerges as a pivotal institution tasked with ensuring the effective enforcement of anti-money laundering rules.
Negotiating teams of the European Parliament and the Council of the EU have reached a political agreement on establishing AMLA, underscoring the EU’s commitment to combating money laundering and terrorist financing.
This article explores the key features and objectives of AMLA and its implications for the financial ecosystem in the Web3 era.
AMLA’s Mandate and Objectives
AMLA’s mandate is expansive, encompassing the supervision of the EU’s new rulebook on combating money laundering and terrorist financing.
Under the trilogue agreement, AMLA will directly supervise financial entities deemed to pose the highest risk of money laundering or terrorist financing. These entities include cryptocurrency providers, underscoring AMLA’s comprehensive approach to addressing emerging risks in the financial sector.
Moreover, AMLA will act as a central hub for coordinating the actions of supervisors in different EU countries, ensuring convergence of supervisory practices and harmonisation of AML/CFT rules. AMLA will support European Financial Intelligence Units in analysing suspicious transactions and detecting money laundering cases, thereby enhancing the effectiveness of anti-money laundering efforts across the EU.
In addition to its supervisory responsibility, AMLA will play a key role in establishing a coherent framework for AML authorities of Member States and harmonising the fight against money laundering and terrorism financing in the EU. The agency will develop selection criteria for financial entities to be directly supervised and facilitate joint analyses and information sharing among national authorities and Financial Intelligence Units.
Furthermore, AMLA will have the authority to impose binding settlements in the event of disagreement between national authorities, ensuring a harmonised approach to AML/CFT supervision across the EU.
By promoting the convergence of AML/CFT standards and facilitating cross-border cooperation, AMLA aims to enhance the effectiveness of global efforts to combat money laundering and terrorist financing.
Balancing Security with Innovation
As AMLA assumes its pivotal role in combating financial crimes, it must strike a delicate balance between regulatory enforcement and fostering innovation. While AMLA will directly supervise the riskiest financial entities, including cryptocurrency providers, it also aims to prevent the circumvention of targeted financial sanctions and ensure the implementation of AML/CFT rules by obliged entities.
This balanced approach is essential in navigating the complexities of the Web3 landscape, where innovations such as cryptocurrencies and decentralised finance present both opportunities and challenges for AML/CFT efforts. By leveraging its supervisory powers and coordinating mechanisms, AMLA seeks to foster a secure and innovative financial ecosystem that safeguards against illicit activities while promoting responsible innovation.
Addressing Web3 Challenges
The establishment of AMLA comes at a critical juncture as the financial landscape undergoes a paradigm shift towards Web3 technologies. AMLA’s mandate extends beyond traditional financial institutions to encompass emerging sectors such as cryptocurrency and decentralised finance. By directly supervising high-risk entities and coordinating supervisory efforts, AMLA aims to mitigate risks associated with cross-border transactions and ensure the integrity of the financial system in the Web3 era.
To address the unique challenges posed by Web3 technologies, AMLA will develop specialised expertise and innovative regulatory approaches. The agency will engage with industry stakeholders and technology experts to understand emerging risks and develop tailored solutions.
By promoting responsible innovation and effective risk management, AMLA seeks to harness the transformative potential of Web3 technologies while safeguarding against financial crime.
AMLA’s First Steps
AMLA would go live in mid-2025 and will likely begin direct supervision of ‘high-risk’ institutions in 2026/2027.
Given how few financial entities it will directly supervise, however, we expect AMLA’s principal impact to come indirectly, via its influence on national authorities (who will continue to lead supervision of the vast majority of EU financial institutions) and AMLA’s power to issue Implementing or Regulatory Technical Standards, which are directly binding also to non-directly supervised financial entities. To succeed, AMLA will need to use its rule-making and coordination powers to harmonise supervisory practices and drive up standards across the EU.
This points to two key priorities as the new agency starts operating:
- Developing Technical Standards: the EU AML coordination group has already identified 80 Implementing or Regulatory Technical Standards (ITS/RTS) required to specify the details of the new single AML/CFT rulebook.
- Establishing Supervisory Policies and Processes: including building up Joint Supervisory Team structures, establishing modes of cooperation with national AML authorities and formulating Memoranda of Understanding on cooperation with other EU and third-country agencies.
AMLA will also draw on the ECB’s experience in setting up the Single Supervisory Mechanism: a number of senior ECB staff have already been seconded to the EC’s AMLA Task Force that is preparing the ground for the new authority.
How banks / financial entities can get prepared
The start of AMLA supervision may seem a long way off – and it is undoubtedly too early to be sure which will be the of its supervision.
But financial entities potentially directly supervised but also especially the vast majority being indirectly supervised but nevertheless directly affected by AMLA’s ITS/RTS should prepare themselves for more rigid AML regulatory standards and more intrusive supervision as the new EU AML regime comes into effect. Key preparatory steps include detailed country-by-country analysis of existing policies and practices against the new requirements and the establishment of coherent, consolidated AML controls and governance covering all EU business lines.
While not itself an AML supervisor, the European Central Bank (ECB) recognises that effective collaboration between prudential and AML supervisors will be vital to the success of both their missions and that it, too, will have a role to play in combatting illicit finance.
In recent years, the ECB has established a network for cooperation and information sharing with around 50 European AML authorities and set up an internal AML coordination function to act as an in-house centre of expertise and point of contact on AML-related issues.
The ECB has also updated its supervisory approach to money-laundering risks as part of its Supervisory Review and Evaluation Process (SREP), feeding into SREP scores and hence Pillar 2 capital requirements. AML will not, therefore, be left entirely to AMLA but will continue to be part of the ECB’s supervisory scrutiny of banks’ risk management and governance.
Recent Developments
In a recent announcement by the Belgian Presidency, AMLA’s future seat has been determined to be in Frankfurt, Germany. This decision underscores the EU’s commitment to advancing its fight against illicit finance. AMLA is set to have more than 400 staff.
Conclusion
The creation of AMLA represents a significant step towards enhancing the EU’s resilience against money laundering and terrorist financing. Waiting for the agency to be operational, businesses and financial entities must prepare for more demanding AML regulatory standards and more intrusive supervision. With the support of professional advisors, companies can navigate the evolving regulatory landscape and ensure compliance with AML/CFT rules.
AMLA heralds a new era of collaboration and coordination in the fight against financial crime. As the authority prepares to become fully operational, stakeholders must actively engage with AMLA to shape its policies and priorities. By working together, we can build a more resilient and secure financial ecosystem that fosters innovation and protects the integrity of the global financial system.
