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The European Banking Authority (EBA) has recently released (16th June) a report shedding light on the inadequate assessment and management of money laundering and terrorist financing (ML/TF) risks within EU payment institutions. The findings highlight a lack of effective risk mitigation strategies implemented by both institutions and their supervisory bodies.
In 2022, the EBA conducted an assessment to gauge the scale and nature of ML/TF risks within the payment institutions sector. The investigation focused on the identification and management of these risks by payment institutions, as well as the efforts made by supervisors to mitigate them during the authorization process and throughout the lifespan of these institutions.
The Authority’s findings reveal a general failure among institutions in adequately managing ML/TF risks. Internal controls related to anti-money laundering (AML) and counter-terrorist financing (CFT) measures within payment institutions often prove inadequate in preventing such illicit activities. These shortcomings persist despite the sector being inherently exposed to high ML/TF risks. The report also suggests that not all competent authorities are currently exercising sufficient supervision over the sector. Consequently, payment institutions with weak AML/CFT controls can operate within the EU, exploiting differences in authorization and AML/CFT supervision processes across member states to engage in cross-border activities.
Failure to effectively manage ML/TF risks within the payment institutions sector poses a significant threat to the integrity of the EU’s financial system. Additionally, the EBA’s work on improving access to financial services indicates that the persistence of these risks undermines efforts to enhance payment institutions’ access to payment accounts.
Several of the issues highlighted in the EBA’s findings can be addressed through the implementation of guidelines established by the authority. A more robust adoption of these provisions by supervisors and institutions would contribute to mitigating the sector’s exposure to ML/TF risks.
The EBA’s mandate to perform risk assessments on significant ML/TF risks affecting the EU’s financial sector is derived from Article 9a(5) of Regulation (EU) 1095/2010, known as the EBA founding regulation. To inform this risk assessment, the EBA drew upon various sources, including the findings of a peer review on the authorization of payment institutions under PSD2, data extracted from the EBA’s AML/CFT database (EuReCA), questionnaire responses, bilateral interviews with EU supervisors, and national and supervisory assessments of ML/TF risks in the sector.
In line with its responsibility to lead, coordinate, and monitor the AML/CFT efforts of all EU financial services providers and supervisors, the EBA is committed to addressing ML/TF risks comprehensively across all financial sectors within its jurisdiction. The findings of this risk assessment will contribute to the EBA’s bi-annual ML/TF risk assessment exercise under Directive (EU) 2015/849, as it continues to tackle these risks holistically.
The cleversoft RegWatch team will keep an eye on developments in this regard and inform you of any consequences that may follow. If you have any questions on how our AML solutions can simplify your business´compliance obligations, feel free to contact us at any time.
