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•Reasons for and objectives of the proposal
Money laundering and terrorist financing pose a serious threat to the integrity of the EU economy and financial system and the security of its citizens. Europol has estimated that around 1% of the EU’s annual Gross Domestic Product is ‘detected as being involved in suspect financial activity’ 1 . In July 2019, following a number of prominent cases of alleged money laundering involving credit institutions in the Union, the Commission adopted a package 2 analysing the effectiveness of the EU Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regime as it stood at that time, and concluding that reforms were necessary. In this context, the EU’s Security Union Strategy 3 for 2020-2025 highlighted the importance of enhancing the EU’s framework for anti-money laundering and countering terrorist financing in order to protect Europeans from terrorism and organised crime.
On 7 May 2020 the Commission presented an Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing 4 . In that Action Plan, the Commission committed to take measures in order to strengthen the EU’s rules on combating money laundering and terrorist financing and their implementation and defined six priorities or pillars:
1. Ensuring effective implementation of the existing EU AML/CFT framework,
2. Establishing an EU single rulebook on AML/CFT,
3. Bringing about EU-level AML/CFT supervision,
4. Establishing a support and cooperation mechanism for Financial Intelligence Units (FIUs),
5. Enforcing EU-level criminal law provisions and information exchange,
6. Strengthening the international dimension of the EU AML/CFT framework.
While pillars 1, 5 and 6 of the Action Plan are being implemented, the other pillars demand legislative action. This proposal for a Regulation is part of an AML/CFT package of four legislative proposals that is considered as one coherent whole, in implementation of the Commission Action Plan of 7 May 2020, creating a new and more coherent AML/CFT regulatory and institutional framework within the EU. The package encompasses:
–a proposal for a Regulation on the prevention of the use of the financial system for the purposes of money laundering (ML) and terrorist financing (TF) 5 ;
–this proposal for a Directive establishing the mechanisms that Member States should put in place to prevent the use of the financial system for ML/TF purposes, and repealing Directive (EU) 2015/849 6 ;
–a proposal for a Regulation creating an EU Authority for anti-money laundering and countering the financing of terrorism (‘AMLA’) 7 , and
–a proposal for the recast of Regulation (EU) 2015/847 expanding traceability requirements to crypto-assets 8 .
This present legislative proposal, together with a proposal for an AML/CFT Regulation and a proposal for a recast of Regulation (EU) 2015/847, fulfils the objective of establishing an EU single rulebook (pillar 2).
Both the European Parliament and the Council lent their support to the plan set out by the Commission in the May 2020 Action Plan. In its resolution of 10 July 2020, the European Parliament called for strengthening Union rules and welcomed plans to overhaul the EU AML/CFT institutional set-up 9 . On 4 November 2020, the ECOFIN Council adopted Conclusions supporting each of the pillars of the Commission’s Action Plan 10 .
The need for the combination of harmonised rules via an AML/CFT Regulation and stronger rules on the national AML/CFT systems through an AML/CFT Directive is corroborated by the evidence provided in the 2019 reports issued by the Commission. These reports identified a lack of consistent approaches to supervision of obliged entities, with divergent outcomes for operators providing services across the internal market. They also highlight that uneven access to information by FIUs which limits their capacity to cooperate with one another and that FIUs lacked common tools. All these elements limited the detection of cross-border ML/TF cases. Finally, due to a lack of a legal basis it has not been possible so far to interconnect bank account registers and data retrieval systems, key tools for FIUs and competent authorities.
To address the above issues and avoid regulatory divergences, all rules that apply to the private sector have been transferred to a proposal for an AML/CFT Regulation. However, in recognition of the need for flexibility for Member States in this area, whereas the organisation of the institutional AML/CFT system at national level is left to this proposal for a Directive.
However, the present proposal does not simply transfers provisions from the current Directive to a future one; a number of changes of substance are made in order to bring about a greater level of convergence in the practices of supervisors and FIUs and in relation to cooperation among competent authorities:
–to avoid that the administrative set-up of FIUs impacts their analytical functions nor their capacity to cooperate with their counterparts, their powers and tasks are clarified, as well as the minimum set of information that FIUs should be able to access;
–to ensure that FIUs are effectively able to cooperate, a framework for joint analyses is laid down. A legal basis for the FIU.net system is also provided;
–in order to inform the risk understanding of obliged entities, clear rules on feedback by FIUs are laid down. Similarly, clear rules on feedback to FIUs are provided for to ensure that FIUs are aware of the use made of the financial intelligence they provide;
–the powers and tasks of supervisors are clarified to ensure that all supervisors have the instruments to take adequate remedial actions. The duty of oversight by a public authority on self-regulatory bodies that act as supervisors is introduced, with clear tasks defined for this public authority;
–the approach to risk-based supervision is harmonised through a common risk-categorisation tool in order to avoid divergent risk understanding in comparable situations;
–in order to improve cooperation among supervisors, AML/CFT colleges are set up, and mechanisms are put in place to ensure supervisory cooperation in relation to operators that provide services across borders;
–cooperation with other authorities is clarified by providing for specific cases in which a duty to cooperate arises in order to avoid inefficiencies due to sylos approaches;
–the powers of the registers of beneficial ownership are clarified to make sure that they can obtain up-to-date, adequate and accurate information;
–to remedy the current shortcoming in legislation, an interconnection of the bank account registers is provided for.
–in order to ensure full consistency with EU data protection rules, requirements for the processing of certain categories of personal data are introduced.
On the other hand, provisions on risk assessments or the collection of statistics are largely left unchanged, and only reviewed to take stock of the current inefficiencies identified, such as the excessive frequency of the supra-national risk assessment and the requirement to collect statistics on illegal activities.
•Consistency with existing policy provisions in the policy area
This proposal repeals and replaces the existing Directive (EU) 2015/849, as amended by Directive (EU) 2018/843 11 . As stated, this proposal is part of an AML/CFT package, encompassing a proposal for a Regulation on the prevention of the use of the financial system fore the purposes of money laundering and terrorist financing, a Regulation creating AMLA, and a recast of Regulation (EU) 2015/847. This package of four legislative proposals is considered as one coherent whole, in implementation of the Commission Action Plan on AML/CFT of 7 May 2020, creating a new and more coherent AML/CFT regulatory and institutional framework in the EU. In parallel to the adoption of this package, the Commission also proposes amendments to Directive 2019/1153 12 in order to provide competent authorities, responsible for the prevention, detection, investigation or prosecution of criminal offences, with access to the system interconnecting the centralised bank account registers.
This proposal, as it builds on Directive (EU) 2015/849, is consistent with the recommendations of the Financial Action Task Force (FATF). Compared with the current Directive, it increases consistency by ensuring that when supervision is performed by self-regulatory bodies, those self-regulatory bodies are subject to oversight by a public authority. The frequency of the supra-national risk assessment is also brought in line with best practices recognised by FATF (every 4 years). This proposal also integrates the changes brought about by the recent revisions of the FATF recommendations in relation to assessment and mitigation of risks of evasion of targeted financial sanctions.
Effective enforcement is crucial to prevent money laundering and the financing of terrorism. The Commission will continue to make use of the full range of means and mechanisms to be able to check not only the correct transposition of the Union requirements in national law, but also their effective implementation by Member States in daily practice.
•Consistency with other Union policies and legal instruments
This proposal is in line with with policy aims pursued at Union level, and in particular the Directive on combating money laundering through criminal law 13 , the Directive on combatting terrorism 14 and the Directive on access to financial information 15 as well as with its proposed amendment, adopted together with this package. Addressing ML/TF risks is not effective through EU legislation on AML/CFT alone; this legislation interacts with much EU legislation in the financial services and criminal law areas. This includes EU legislation on payments and transfers of funds (Payment Services Directive, Payment Accounts Directive, Electronic Money Directive 16 ). Attention has been given in the present package of proposals to ensure consistency with all such instruments.
- 2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
- 3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
- 4.BUDGETARY IMPLICATIONS
- 5.OTHER ELEMENTS
- Subject matter and scope
- Risk assessments
- Registers and mechanisms of Beneficial Ownership, bank accounts and real estate
- Financial Intelligence Units
- AML Supervision
- Self-Regulatory Bodies (SRBs)
- Administrative measures and sanctions
- Final provisions
This proposal for a Directive is based on Article 114 TFEU, the same legal basis as the current EU AML/CFT legal framework. Article 114 is appropriate considering the significant threat to the internal market caused by money laundering and terrorist financing, and the economic losses and disruption on a cross-border level which it can create.
In accordance with the principles of subsidiarity and proportionality as set out in Article 5 of the Treaty on European Union, the objectives of the proposal cannot be sufficiently achieved by Member States and can therefore be better achieved at the Union level. The proposal does not go beyond what is necessary to achieve those objectives.
The 2019 Commission AML package highlighted how criminals have been able to exploit the differences among Member States’ AML/CFT regimes. Flows of illicit money and terrorist financing can damage the stability and reputation of the Union financial system and threaten the proper functioning of the internal market. Measures adopted solely at national level could have adverse effects on the internal market and contribute to fragmentation. EU action is justified in order to maintain a level playing field across the Union – with entities in all Member States subject to a consistent set of anti-money laundering and combating terrorist financing obligations. The cross-border nature of much money laundering and terrorist financing makes good cooperation between national supervisors and FIUs essential to prevent these crimes. Many entities subject to AML obligations have cross-border activities, and different approaches by national supervisors and FIUs hinder them in achieving optimal AML/CFT practices at group level.
Proportionality has been an integral part of the impact assessment accompanying the proposal and all the proposed options in different regulatory fields been assessed against the proportionality objective. The cross-border nature of much money laundering and terrorist financing requires a coherent and coordinated approach across Member States based on a coherent set of rules in the form of a single rulebook. However, the present proposal does not adopt a maximum harmonisation approach, as being incompatible with the fundamental risk-based nature of the EU’s AML/CFT regime and to the specific national rules that may apply to competent authorities in this field. Member States remain free to introduce rules going beyond those laid out in the package of proposals of which this draft Directive is a part, but only if they are justified on a risk-based approach.
•Choice of the instrument
A Directive of the European Parliament and of the Council is an appropriate instrument for the reconduction, with amendments, of the provisions in the current AML Directive which are not suitable to be directly applicable in the form of a regulation, in particular with regard to the powers and tasks of competent authorities and the establishment and access to beneficial ownership and bank account registers; other provisions from the current AML Directive have been placed (with amendments, as appropriate), in the accompanying proposal for an AML/CFT Regulation.
•Ex-post evaluations/fitness checks of existing legislation
A full ex-post evaluation of the current EU AML/CFT regime has not yet taken place, against the background of a number of recent legislative developments. The fourth AML Directive was adopted on 20 May 2015, with a transposition deadline for Member States of 26 June 2017. The Fifth AML Directive 17 was adopted on 30 May 2018, with a transposition deadline of 10 January 2020. Transposition control is still ongoing. However, the Commission Communication of July 2019 and accompanying reports referred to above serve as an evaluation of the effectiveness of the EU AML/CFT regime as it stood at that point in time.
The consultation strategy supporting this proposal was composed of a number of components:
–A consultation on the roadmap announcing the Commission’s Action Plan. The consultation, on the Commission’s Have Your Say portal, ran between 11 February and 12 March 2020, and received 42 contributions from a range of stakeholders;
–A public consultation on the actions put forward in the Action Plan, open to the general public and all stakeholder groups, launched on 7 May 2020, and open until 26 August. The consultation received 202 official contributions;
–A targeted consultation of Member States and competent AML/CFT authorities. Member States had the opportunity to give their views in various meetings of the Expert Group on Money Laundering and Terrorist Financing, and EU FIUs made input in meetings of the FIU Platform and via written papers. The discussions were supported by targeted consultations of Member States and competent authorities, using questionnaires;
–A request for advice from the European Banking Authority, made in March 2020; the EBA provided its opinion on 10 September;
–On 23 July 2020, the EDPS issued an opinion on the Commission’s Action Plan;
–On 30 September 2020, the Commission organised a high-level conference, bringing together representatives from national and EU authorities, MEPs, private sector and civil society representatives and academia.
Stakeholder input on the Action Plan was broadly positive.
•Collection and use of expertise
In preparing this proposal, the Commission relied on qualitative and quantitative evidence collected from recognised sources, including technical advice from the European Banking Authority. Information on enforcement of AML rules was also obtained from Member States via targeted questionnaires.
This proposal is accompanied by an impact assessment 18 , which was submitted to the Regulatory Scrutiny Board (RSB) on 6 November 2020 and approved on 4 December 2020. The same impact assessment also accompanies the other legislative proposals which are presented in a package together with the present proposal. The RSB proposed various presentational improvements to the impact assessment in its positive opinion; these have been made.
In the impact assessment the Commission considered three problems: lack of clear and consistent rules, inconsistent supervision across the internal market and insufficient coordination and exchange of information among FIUs. The first of those problems is relevant for the present proposal; on that problem the following options were considered:
–EU rules would remain as they are with no modifications;
–Ensure a greater level of harmonisation in the rules that apply to obliged entities and leave it to Member States to detail the powers and obligations of competent authorities;
–Ensure a greater level of harmonisation in the rules that apply to entities subject to AML/CFT obligations and the powers and obligations of supervisors and FIUs.
Based on the outcome of the impact assessment, option 3 is the preferred option. By introducing a consistent and more granular approach to the above rules at EU level, it would allow to remove the current fragmentation both as regards AML/CFT obligations for obliged entities, and the activities of competent authorities. Clearer rules on tasks and powers of competent authorities will improve the consistency of implementation of the AML/CFT framework across the EU, facilitate the creation of an EU integrated supervisory mechanism and improve detection of suspicious flows and activities.
•Regulatory fitness and simplification
Although, as noted above, no formal ex-post evaluation or fitness check of existing EU AML/CFT legislation has yet taken place, a number of points can be made with regard to elements of the proposed overall package of measures which will further simplification and improved efficiency. Firstly, the replacement of certain rules in a Directive with more harmonised and directly applicable rules in a Regulation, will remove the need for transposition work in the Member States and facilitate doing business for cross-border entities in the EU. Moreover, the removal from the scope of the EU AML framework of traders in goods, linked to the proposed prohibition on cash operations over EUR 10 000, will release such traders from the administrative burden of submitting to their FIU reports on cash operations exceeding EUR 10 000. Finally, the greater degree of harmonisation of AML/CFT rules in a number of specific areas will simplify cooperation between supervisors and FIUs due to the reduction in divergences between their rules and practices. The present draft Directive contains only certain provisions which require transposition in national law, and is therefore shorter than the Directive which it replaces; most subjects treated in Directive (EU) 2015/849 are now contained in the proposed Regulation accompanying this proposed Directive.
The EU is committed to ensuring high standards of protection of fundamental rights. In particular, all national and EU level AML/CFT supervisors, as well as Financial Intelligence Units, will be subject to the relevant data protection regulation 19 in so far as they may handle any personal data.
This draft Directive has no budgetary implications.
•Implementation plans and monitoring, evaluation and reporting arrangements
The proposal includes a general plan for monitoring and evaluating the impact on the specific objectives, requiring the Commission to carry out a first review after five years and at least three years after the entry into force of the Directive, and to report to the European Parliament and the Council on its main findings. The proposal for an AML/CFT Regulation accompanying this present proposal has the same evaluation provisions, and the evaluation of the two instruments can be combined in one report. The review is to be conducted in line with the Commission’s Better Regulation Guidelines.
•Detailed explanation of the specific provisions of the proposal
Most applicable definitions for this draft Directive are contained in the draft Regulation accompanying it (where the definitions are relevant for both instruments); however, certain terms are defined in this draft Directive, where not relevant for the accompanying Regulation.
This draft Directive enables Member States to extend the requirements of the accompanying draft Regulation to other sectors not covered in the scope of that Regulation; however, they must notify and explain their intention to the Commission, which will have six months to adopt an Opinion on the plans (after consulting AMLA), and may choose to propose legislation at EU level instead. Transitional provisions are laid down for additional sectors already covered by national AML/CFT legislation but not EU legislation. A consolidated list of the sectors to which Member States have extended the list of obliged entities will be published by the Commission in the Official Journal of the European Union on an annual basis.
This draft Directive also sets out specific regulatory requirements that Member States are to implement in national law for certain sectors. Specifically, currency exchange and cheque cashing offices, and trust or company service providers must be suject to either licensing or registration requirements; gambling service providers must be regulated.
This draft Directive allows supervisors of the Member States where electronic money issuers, payment service providers and crypto-assets service providers are active via freedom to provide services to appoint contact points in those Member States; AMLA shall propose Regulatory Technical Standards to clarify when this should be the case.
This draft Directive confirms the probity requirements for senior managers in certain obliged entities as in the current framework, complementing fit and proper requirements in other Union acts, and clarifies that certain requirements also apply to beneficial owners of those obliged entities. For other obliged entities, it confirms the prohibition for persons convicted of money laundering, its predicate offences or terrorist financing to operate them. This draft Directive grants certain powers to national supervisors over the senior management of certain obliged entities, especially in the case of conviction for money laundering or terrorist financing.
The requirement on the Commission to conduct periodically an assessment of AML/CFT risks at EU level, contained in the current AML/CFT framework, is maintained, however with the frequency of the assessment extended to every four years. The assessment will be based on input from AMLA in the form of an Opinion, and be accompanied by recommendations to Member States on the measures suitable for addressing the identified risks. The Commission will also report every four years to the European Parliament and the Council on the actions taken in reaction to the findings of the assessment.
National risk assessments will continue to be carried out by Member States but with a minimum frequency of every four years, and with certain additions to the objectives and modalities of such assessments. Member States must also continue to maintain comprehensive statistics on AML/CFT and transmit them to the Commission annually. The Commission may adopt an Implementing Act on the methodology for such statistics.
The obligation on Member States to create and maintain registers of Beneficial Ownership of legal entities and legal arrangements, contained in the current AML Directive, is maintained. This comprises provisions on access to such registers, including public access, and possible exemptions to access in justified cases. The cross-border interconnection of such registers, via the Beneficial Ownership Registers Interconnection System, is maintained.
New provisions in this proposal, not already in the current framework, are: a Commission Implementing Act on the format for the submission of beneficial ownership information to the Registers; provisions for cases of doubt of the accuracy of the beneficial ownership information or where the beneficial owner cannot be identified; further provisions in case of identified discrepancies in information; powers of the entities managing the registers; requirement for Member States to notify to the Commission the competent authorities to which access has been granted and the type of access; a minimum duration for which information must be maintained in the registers of five years.
The obligation on Member States to create and maintain mechanisms, such as a central register or a central electronic data retrieval system, to allow identification of holders of bank accounts and safe deposit boxes, contained in the current AML Directive, is continued. Member States must notify to the Commission not only the characteristics of such mechanisms but the criteria governing which information is included in such registers. The proposal also lays down the creation of a cross-border interconnection between such mechanisms, with Commission Implementing Acts on the technical specifications and procedures for the interconnection of such mechanisms to a single access point, which will be developed and operated by the Commission. Member States must ensure that the information in the national mechanisms is up to date and accessible via the cross-border interconnection. FIUs must have access to the mechanisms, including those interconnected from other Member States.
The requirement on Member States to provide FIUs and other competent authorities access to the contents of national real estate registers, contained in the current AML Directive, is continued and the minimum extent of such access is defined. Member States are required to notify to the Commission the competent authorities which are granted access to such registers and the extent of such access.
The proposal builds on the provisions contained in the current AML/CFT framework, requiring Member States to create operationally independent FIUs at national level, to receive and analyse Suspicious Transaction Reports and Suspicious Activity Reports (STRs/SARs) from Obliged Entities; these existing provisions include cooperation and exchange of information between FIUs, the uses of exchanged information, and further dissemination of exchanged information.
New provisions on FIUs concern: clarifications on the financial analysis function of FIUs and on their operational independence, their resources and their security; a list of the minimum categories of information to which FIUs must have access; provisions on information exchange between FIUs and other competent authorities, including an obligation for provision of feedback on how the information was used; clarifications on the powers of FIUs to suspend transactions, which must be done within 48 hours of receiving an STR/SAR and extension of such powers to suspend the use of bank accounts in justified circumstances. Further details on modalities of exchanges of information between FIUs are laid down; such exchanges must be done using the network FIU.net; any exceptions to information which can be exchanged must be notified to the Commission by Member States. AMLA is to prepare draft Implementing Technical Standards harmonising the formats for information exchange; it will also adopt guidelines on criteria to determine if any STR/SAR is of interest to FIUs of other Member States. FIUs will produce annual reports on their activities and provide feedback to obliged entities on the use of their STRs/SARs, and also feedback to customs authorities on information submitted to FIUs on amounts of cash physically entering or leaving the Union. Another new provision clarifies the concept and of joint analyses to be carried out by FIUs and defines processes for their performance.
The proposal builds on the provisions contained in the current AML/CFT framework, requiring Member States to create national AML/CFT supervisors to supervise Obliged Entities, including the tasks powers and responsibilities of such supervisors, and cooperation between them and FIUs and between them and third country supervisors.
New provisions include: clarifications on the tasks and powers of supervisors; a requirement for provision of information by national supervisors to obliged entities; clarifications regarding risk-based supervision, including guidelines to be prepared by AMLA on the characteristics of a risk-based approach, and Regulatory Technical Standards on a methodology for assessing and classifying the inherent and residual risk profile of obliged entities and on the frequency of review. Clarifications are provided on competences of supervisors in cases of obliged entities operating under the freedom to provide services, and in the context of group supervision; in this connection there will be Regulatory Technical Standards perpared by AMLA detailing the respective duties of the home and host supervisors, and the modalities of cooperation between them.
For cross-border credit or financial institutions operating in several Member States, an AML/CFT supervisory college must be created where certain criteria are met; AMLA will prepare Regulatory Technical Standards on the general conditions for the functioning of AML/CFT supervisory colleges. Provisions are laid down for cooperation with financial supervisors in third countries.
A new section, compared with the present AML/CFT framework, concerns SRBs. Where a member State confers AML/CFT supervision of certain obliged entities to an SRB, there must be oversight of the SRB by a public authority, with the aim of ensuring that the SRB carries out its tasks to the highest standard. The oversight body must have adequate powers, including the power to obtain information, and will publish an annual report on its activity and on the supervisory activities of the SRBs under its oversight.
The provisions on sanctions build on the current AML/CFT framework, obliging Member States to provide for administrative measures and sanctions to be available for serious repeated or systematic breaches by obliged entities of key requirements of the framework, with specifications on the minimum and maximum amounts of pecuniary sanctions, and providing for publication of sanctions imposed, whistleblower protection and exchange of information on sanctions.
New provisions include: clarification of administrative measures other than sanctions for less serious breaches and a requirement for Member States to notify to the Commission and AMLA their arrangements relating to the imposition of administrative sanctions or measures. The circumstances to be taken into account when determining the type and level of administrative sanctions or measures are specified. There will be Regulatory Technical Standards prepared by AMLA defining indicators to classify the level of gravity of breaches and criteria to be taken into account when setting the level of administrative sanctions or taking administrative measures.
The provisions on cooperation between supervisors ,FIUs and other competent authorities build on the current AML/CFT framework, including cooperation between competent authorities of Member States, and provisions for cases where authorities are bound by professional secrecy.
New provisions in the present proposal include the addition of references to AMLA and an obligation on other bodies to cooperate with it. Existing provisions to ensure good cooperation with prudential supervisors of financial instutions are enhanced with additional specifications, and resolution authorities, as well as authorities in charge of the supervision of credit insitutions for cooperation with the PAD and PSD2. Financial supervisors and FIUs will report annually to AMLA on their cooperation with those authorities. Provisions in relation to cooperation with regard to auditors are added, and AMLA will issue guidelines on cooperation.
The processing of personal data under this proposal, as in the case of the current AML/CFT framework, is subject to Regulation (EU) 2016/679, or Regulation (EU) 2018/1725, if carried out by Union institutions, agencies or bodies.
The Commission will be assisted by a Committee, in particular for the preparation of Implementing Acts.
Provisions for the transfer of hosting of FIU.net from the Commission to AMLA are included.
Directive 2015/849 as amended (the current AML/CFT framework) is repealed. The proposed Directive will enter into force on the twentieth day after publication in the Official Journal; the transposition deadline is two years from the entry into force of the Directive. The Commission must first review and evaluate this Directive within 5 years of its application and subsequently every three years.