ESBG responds to the Commission consultation on defining violations of Union restrictive measures

Restrictive measures are an essential tool for maintaining international peace and supporting democracy, the rule of law and human rights.

To preserve these values, the EU currently has over 40 sets of restrictive measures in place which are binding on Member States and on any person or entity under their jurisdictions, including banks. While the adoption of Union restrictive measures has intensified over recent decades, national systems still differ significantly in the criminalisation of their violation. Against this background, the European Commission published a proposal for a Directive on the definition of criminal offences and penalties for the violation of Union restrictive measures in December 2022 to support the efficient enforcement of the rules.

In our response to the Commission’s call for feedback on the proposal, ESBG highlighted important points focused on the roles of banks in the sanctions compliance, such as removing the penalization of serious negligent violations. Additionally, a non-punishable voluntary self-disclosure for employees should be introduced to sufficiently protect them when a mistake happens. This shall prevent the criminalisation of human errors in sanction checks. Furthermore, we stressed that criminal liability requires a precise conceptual delineation of rights and obligation of the involved parties, and provided more remarks on the particular provisions.

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WSBI-ESBG shares its position on the draft FATF Guidance on the transparency and beneficial ownership of legal persons

In March 2022, the Financial Action Task Force (FATF) adopted amendments to Recommendation 24 (R.24) on the transparency and beneficial ownership of legal persons. A draft update on the Guidance to R.24 was published afterwards, aiming to facilitate the implementation of the new rules.

The FATF Recommendations set out global AML/CFT measures and should be implemented by countries in the best way possible according to their legal, administrative and operational frameworks. The first batch of FATF Recommendations were published in 1990 and lastly updated in 2012. They are complemented by their Interpretive Notes and a Glossary of definitions.

The FATF Recommendation 24 (R.24) addresses the transparency and beneficial ownership of legal persons. Inter alia, R.24 provides advice on preventing the risks of misuse of legal persons for ML/TF, prohibiting legal persons to issue new bearer shares or bearer share warrants, and to take measures against the misuse of nominee shareholders and directors. Moreover, the access to beneficial ownership and control information by financial institutions and designated non-financial businesses and professions should be facilitated when meeting certain requirements.

In our response to the consultation, WSBI-ESBG asks for the following:
• Harmonisation of the rules on identifying senior managing officials when a beneficial owner cannot be identified;
• Verification of company registers by national authorities to foster the reliability of their information;
• Establishing an international beneficial owner register to be used by obligated parties in fulfilling their due diligence obligation;
• Creating a list of stock exchanges, that hold information of listed companies to be used for beneficial ownership obligations;
• Making the tax identification number as accessible as appropriate, in case it will be deemed as a necessary KYC-information;
• Permitting the exchange of beneficial ownership information within the same group of banks and between banks.

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ESBG's response to FATF draft amendments on the transparency and beneficial ownership of legal arrangements

Following a white paper on the revision of the rules on the transparency and beneficial ownership (BO) of legal arrangements, the Financial Action Task Force (FATF) published draft amendments to its Recommendation 25 (R.25) and Interpretive Note (INR.25). The FATF may also amend the definition of BO in the glossary to provide more clarity regarding legal arrangements.

The FATF Recommendations set out global AML/CFT measures and should be implemented by countries in the best way possible according to their legal, administrative and operational frameworks. The first batch of FATF Recommendations were published in 1990 and lastly updated in 2012. They are complemented by their Interpretive Notes and a Glossary of definitions.

The FATF Recommendation 25 (R.25) addresses the transparency and beneficial ownership of legal arrangements. Inter alia, R.25 provides advice on measures to prevent the misuse of legal arrangements for ML/TF, and on facilitating the access to beneficial ownership and control information by financial institutions and designated non-financial businesses and professions when meeting certain requirements.

In our response, we highlighted that a definition of “basic ownership” is needed to provide legal certainty on the use of sources when obtaining beneficial ownership information. As a main challenge, we identified the different regulatory frameworks and transparency regimes that hamper the implementation of the rules.

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FATF revision of Recommendation 25

The Financial Action Task Force (FATF) aims to better meet its objective of preventing the misuse of legal arrangements for money laundering and terrorist financing (ML/TF) and therefore conducts a review of its Recommendation 25 (R.25) and the Interpretive Note on their transparency and beneficial ownership (BO).

WSBI-ESBG response to the public consultation
General position
• The fragmented regulatory landscape is an issue for obtaining information from other jurisdictions.
• Guidance for implementing R.25 rules would improve the timely availability and accuracy of BO information.
• Resourcing and funding of the implementation of the R.25 requirements pose potential challenges.
Scope of legal arrangements, risk assessment and foreign trusts
• Regarding the potential limitation of the scope of risk assessment and mitigation obligation to such legal arrangements that have sufficient links with the countries, a sectoral risk assessment for legal persons and arrangements should be considered as a “sufficient link”.
• The new suggested risk assessment allows for the application of enhanced due diligence measures and also provides for how best to mitigate risks associated with different products and services.
Obligations of trustees under R.25
• When extending the requirement to obtain and hold information on beneficiaries or classes of beneficiaries to objects of powers of discretionary trusts, who may derive a benefit form a trust in the future, it should be referred to professional service providers such as lawyers, notaries, accountants, etc.
• Regarding the nexus of such obligations based on residence of trustees or location where the trusts are administered, it would be difficult to verify or authenticate information provided by trustees from other jurisdictions. Some trustees may reside from high-risk jurisdictions.
Definition of beneficial owners
• A standalone definition for BO in the context of legal arrangements might create a clear distinction between a BO for legal arrangements and for legal persons, but could lead to confusion. For a harmonised definition, the interpretive note should provide clarifications on, e.g., the element of “control” in a trust.
• Information regarding beneficiaries should be publicly available to promote transparency.
Obstacles to transparency
• Trusts that are owned or controlled by a company with various directors or nominee shareholders in different jurisdictions could be used to obscure ownership in legal arrangements.
• Flee/flight clauses are used as a protective mechanism for members and the interest of the trust. The enforceability of such clauses might be challenging.
• Key obstacles to transparency of trusts and other legal arrangements are the lack of uniform know-your-customer (KYC) standards as well as the use of professional intermediaries. Furthermore, the identification of BO of nominee shareholders, directors or various stocks can be difficult.
Approach in collecting beneficial ownership information
• Incomplete mandatory KYC information collected by other agents or service providers incl. trust and company service providers are observed to be an issue, as well as a fragmented regulatory landscape.
• A multi-pronged approach should be followed for accessing BO information of legal arrangements.
Adequate, accurate and up-to-date information
• The notion of “independently sourced/obtained documents, data or information” in the definition of accurate information poses an issue for the private sector as it is difficult to obtain adequate information

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On the EBA guidelines for Anti-Money Laundering Compliance Officers

We welcome both the decision to update the Supervisory Review and Evaluation Process (SREP) Guidelines and the overarching objectives to increase convergence of practices across the EU and to align with other relevant EBA Guidelines.

ESBG calls for several clarifications and amendments.

Particularly, in light of the different transposition of the AML Directive, it is of utmost importance that, where a conflict is unavoidable, national specificities prevail guideline provisions.

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ESBG welcomes EU Commission's anti-money laundering Package

BRUSSELS, 20 July 2021 – The European Savings and Retail Banking Group (ESBG) welcomes the ambitious AML-CFT package announced today by the European Commission. The ESBG is hopeful that the proposal will strengthen the fight against financial crime and calls for a clear regulation and efficient responsibility sharing between the new EU authority and the national ones.

“The consistent and integrated EU-wide supervision and the risk-based approach of the new AML-CFT regulation are steps in the right direction”, said Joseph Delhaye, Chair of ESBG’s Legal and Retail Committee.

“ESBG members are fully committed to continue fighting money laundering and believe that a clear and practical regulation will be key to make these efforts most effective”, he added.

The proposal for an EU-wide anti-money laundering authority, also part of the package, would be an extraordinary opportunity to ensure consistent supervisory practices and a comprehensive view of current and emerging risks. Nevertheless, overlaps with national authorities must be avoided and centralisation should not come at the cost of efficiency.

“ESBG fully supports harmonised guidance, better coordinated implementation and unified supervisory practices on AML-CFT across the EU”, said WSBI-ESBG Managing Director, Peter Simon.

ESBG is looking forward to strengthening the cooperation between supervisors, national Financial Intelligence Units and the private sector on AML-CFT. Particularly, ESBG members would truly value more feedback from authorities and supervisors regarding reporting activities. Close cooperation among all stakeholders is needed to jointly succeed in the fight against money laundering.

 

Press contact: Leticia Lozano
Senior Communications Adviser
leticialozano@wsbi-esbg.org

Tel. +32 2211 1196 l GSM. +32 (0) 476 42 09 53

 

About ESBG: The European Savings Banking Group (ESBG) has 23 members in 18 countries. As some of its members are national organisations, ESBG represents the interests of over 800 banks working responsibly and closely with their communities and SMEs. Together, ESBG members manage assets worth €5,700 billion, serve 162 million Europeans and employ nearly 660,000 people. ESBG is the regional arm of the WSBI. Both organisations are headquartered in Brussels.

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​​​​​​​​​​​​​​​​​​​​​Preventing money l​aundering and terrorist financing

The adoption of an EU Regulation could be a way to help clarify the grey zones in the existing rulebook and would allow banks that operate cross-border to develop common EU-wide AML/CFT policies and processes, create synergies and facilitate effective cross-border supervision. ​

Supervisory fragmentation could be addressed by the creation of an independent EU body/authority with a clear AML/CFT mandate, or by giving an existing EU authority a deeper AML/CFT mandate, always taking into account also the national specificities. ESBG is supportive of harmonised guidance, better coordinated implementation and unified supervisory practices across the EU, leveraging the experience and expertise of national supervisors as well as banking institutions in this field. However, EU policymakers should be very cautious of overlaps with national authorities. It is therefore of the utmost importance that centralisation does not come at the cost of efficiency. ESBG suggests that synergies be tapped into to avoid placing additional reporting burdens and cost efficiencies on the industry, including potential duplicate procedures and overlaps between national and EU entities whilst ensuring that the monitoring regime is strengthened. ​

ESBG believes that the EU supervisor should have indirect powers over some obliged entities, with the possibility of directly intervening in justified cases. ESBG considers that the EBA is the best option due to the following reasons:

  • It already has deep knowledge, expertise and experience in the financial sector, and the appropriate staff to supervise financial institutions.
  • It currently has some coordination powers in terms of the supervision of AML risks in the financial sector, so it could easily build on those competences and responsibilities.
  • Building on the two reasons mentioned above, the costs of implementing a new AML supervisory system based on the EBA would be easier for the EU and the financial sector to assume. In the context of the COVID-19 crisis, costs and sources of funds will need to be seriously taken into account, and the EBA provides a first-best option in that regard.

In addition to the European Commission AML/CFT Action Plan, European institutions could incorporate some of these additional reflections on policy action: ​

  • NCAs and obliged entities to start building up respective know-how. ESBG believes that there is a need to develop an additional new set of skills and capabilities such as statistics, mathematics and IT, including Big Data and transaction monitoring.
  • Sharing innovative technologies/approaches as best practices in the EU.
  • Enhance the AML regulatory framework to regulate more and grant controlled personal data access and exchange between and within public authorities and financial services to fight crime (even without explicit customer consent). Enhance exchange between banking groups, and between banking groups and public authorities. ESBG calls on the European Commission to develop a communication on the usage of Big Data in anti-financial crime analytics and production, which will include an assessment and proposal to adapt the legal framework.
  • Evaluate EU centralized AML sanction utility, which gathers all necessary/transaction data and apply advanced analytics to detect financial crimes. ​

Identified Concerns

ESBG has always supported preventing money laundering and curbing terrorist financing. Furthermore, ESBG very much supports cooperation between national supervisors and regulators and sees room for further improvements in this area. ESGB also insists that cooperation between supervisors and the private sector should be reinforced as the main flaws in AML and CTF mechanisms are caused by a lack of cooperation and communication between the market operators and the supervisory authority. An ongoing dialogue needs to be fostered between policy and industry.

ESBG encourages EU regulators to continue identifying AML risk related to crypto-assets, wallet services providers and other assets providing a high level of anonymity, and also encourages the establishment of an appropriate legal framework. Moreover, ESBG considers that the GDPR and AML rules still are not coherent enough, especially when it comes to innovation in digital onboarding and the remote digital identification of clients.

Why Policymakers Should Act​

As reported by diverse reports from blockchain analysis, a large part of crypto-assets markets is linked to activities related to financial crime. We consider that novel issues arising from the use of new technologies in financial services require a proper regulation under a new approach. For example, new ​economic operators should be included in the list of obliged entities, as done by some member states when transposing the AMLD 5 into their national rules. Crowdfunding platforms are different types of services related to crypto-assets, including miners and issuers, should be included among the obliged entities. ​​

​Policymakers should remain vigilant regarding other assets providing a high level of anonymity (e.g., pre-paid payment cards which are issued without bearing the cardholder’s name), and lack of an appropriate legal framework.

In addition, our members still observe some cases where applying AML and CTF measures is difficult. For instance:

  • International transfers, amounts of which are increasing, from/to countries with low levels of bank secrecy protection or from/to offshore jurisdictions;
  • Schemes using payment accounts of newly incorporated legal entities, which spark big investment interest in order to transfer big cash flows all at once for money laundering purposes.

Background

Recent developments in legislation have aimed to strengthen the EU anti-money laundering and countering the financing of terrorism (AML/CFT) framework. These include amendments to the 4th Anti-Money Laundering Directive (4AMLD) introduced by the 5th Anti-Money Laundering Directive (5AMLD), an upgraded mandate for the European Banking Authority, new provisions that will apply to cash controls starting from June 2021, amendments to the Capital Requirements Directive (CRDV), new rules on access to financial information by law enforcement authorities and a harmonised definition of offences and sanctions related to money laundering.

More recently, the European Commission presented its political strategy on 7 May 2020 and invited authorities, stakeholders and citizens to provide their feedback. Its action plan is built on six pillars, each of which is aimed at improving the EU’s overall fight against money laundering and terrorist financing, as well as strengthening the EU’s global role in this area. According to the European Commission, these six pillars, when combined, will ensure that EU rules are more harmonised and therefore more effective. The rules will be supervised more closely and there will be better coordination between member state authorities.

In addition, the Commission plans to propose a package of legislative proposals in the first quarter of 2021, with the objective of bringing about an integrated EU AML/CFT system by 2023.​

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