10 Sep
Member News

Houthoff | New European AML/CFT legislation and regulations and other recent developments

In this News Update, we discuss the European Commission’s announcement to revise the European AML/CFT legislation and create a European AML/CFT supervisor. We also look at the EBA’s consultation on new Guidelines on the role of AML/CFT compliance officers. We discuss the CJEU’s ruling on the EBA Guidelines’ validity on product oversight and governance. Further, we look at the EBA’s Opinion to easily implement the IFR and IFD. Finally, we highlight some other financial regulatory publications issued this summer.

EUROPEAN COMMISSION – REVISING EUROPEAN AML/CFT LEGISLATION AND CREATING A EUROPEAN AML/CFT SUPERVISOR

On 20 July 2021, the European Commission (“Commission“) presented a package of bills to strengthen the EU’s anti-money laundering and countering terrorism financing (“AML/CFT“) rules and to create a new EU authority to fight money laundering.

As a follow up on the Commission’s AML/CFT Action Plan of 7 May 2020, the announced measures aim to improve the existing EU framework by considering new and emerging challenges linked to technological innovation, including virtual currencies, more integrated financial flows in the single market and the global nature of terrorist organisations. There is no plan to integrate this responsibility with sanctions and their supervision.

The package consists of four bills:

  • A Regulation establishing a new EU AML/CFT Authority, which will be the central authority coordinating national authorities to ensure the gatekeepers identified in the AML rules correctly and consistently apply EU rules. In the financial sector, it will operate alongside the European Banking Authority (“EBA“), the European Insurance and Occupational Pensions Authority (“EIOPA“) and the European Securities and Markets Authority (“ESMA“);
  • A Regulation on AML/CFT that contains directly applicable rules, including on Customer Due Diligence and Beneficial Ownership;
  • A sixth directive on AML/CFT (“AMLD6“) that replaces the existing Directive 2015/849/EU (AMLD4, as amended by AMLD5), containing provisions that will be transposed into national law, such as rules on national supervisors and national Financial Intelligence Units; and
  • A revised 2015 Regulation on transfers of funds to trace transfers of crypto assets (Regulation 2015/847/EU).

The European Parliament and the Council will discuss the legislative package. If they agree, the AML Authority will operate in 2024 and start supervising once AMLD6 has been transposed and the new regulatory framework applies.

EBA – CONSULTATION ON NEW GUIDELINES ON THE ROLE OF AML/CFT COMPLIANCE OFFICERS

On 2 August 2021, the EBA launched a public consultation on new Guidelines on the role, tasks and responsibilities of AML/CFT compliance officers.

The draft Guidelines address the whole AML/CFT governance set-up. They set clear expectations of the role, tasks and responsibilities of the AML/CFT compliance officer and the management body and how they interact, including at group level. Without prejudice to the management body’s overall and collective responsibility, the draft Guidelines also specify the tasks and role of the management board member, or the senior manager where no management board exists, who are in charge of AML/CFT overall, and on the role of group AML/CFT compliance officers. Where a financial services operator is part of a group, the draft Guidelines provide that a Group AML/CFT compliance officer in the parent company should be appointed to establish and implement effective group-wide AML/CFT policies and procedures. They should also ensure that any shortcomings in the AML/CFT framework affecting the entire group or a large part of the group are addressed effectively. The draft Guidelines’ provisions are designed to be applied in a proportionate manner, considering the diversity of financial sector operators that are within the AMLD’s scope. They are also in line with existing ESA Guidelines.

The consultation runs until 2 November 2021.

CJEU – EBA GUIDELINES’ VALIDITY ON PRODUCT OVERSIGHT AND GOVERNANCE

On 15 July 2021, the Court of Justice of the European Union (“CJEU“) issued a judgment (only available in French, German, Estonian, Lithuanian and Polish) establishing the validity of the EBA Guidelines on product oversight and governance. The ruling supports the EBA in reducing the prudential impact of misconduct for financial institutions and to protect consumers from banking products that are not fit for purpose. The CJEU also confirmed that while EBA Guidelines are not legally binding, supervisors and financial institutions must make every effort to comply with them, and give reasons if they intend not to comply. National courts are also expected to consider EBA Guidelines when resolving cases.

The ruling was prompted by questions the French Conseil d’État submitted to the CJEU in response to the action brought before it by the Fédération bancaire française in November 2017. The action sought to annul the announcement by the French banking supervisor, the Autorité de Contrôle Prudential et de Résolution, that it complied with the EBA Guidelines on product oversight and governance.

These EBA Guidelines establish that the EU banking sector should:

  • ensure financial products and services are designed to meet their target consumers’ needs and interests;
  • test products prior to their launch and monitor them; and
  • take remedial action when something has gone wrong.

EBA – CLARIFYING HOW TO IMPLEMENT THE NEW PRUDENTIAL REGIME FOR INVESTMENT FIRMS

On 1 July 2021, the EBA published an Opinion to easily implement the Investment Firms Regulation (“IFR“) and Investment Firms Directive (“IFD“) in the Member States, which entered into force on 26 June 2021. We note that the IFD’s national implementation into Dutch law and regulations has not yet been finalised; the implementation act is currently pending before the Dutch Senate.

The IFR/IFD classify investment firms according to their business model and size, where the latter is benchmarked on various thresholds. For most investment firms, it is clear which prudential regime applies to them. For certain firms, including investment firms of third country groups, the Opinion recommends the actions to take if investment firms are uncertain on whether they should apply to become a credit institution without the delegated act establishing the methodology for calculating the highest threshold (EUR 30 bn), on which the EBA has opened a second public consultation. The EBA advises supervisors to apply a pragmatic approach for those investment firms, where the EUR 30 bn threshold for identifying the prudential regime to be applied to the investment firm cannot be determined without the EBA’s draft Regulatory Technical Standards (RTS) guidance. More specifically, the EBA advises supervisors not to prioritise any supervisory or enforcement action related to identifying investments firms until six months after the final methodology is in place.

OTHER FINANCIAL REGULATORY PUBLICATIONS

We have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision in July and August 2021. The number of proposals, guidance and final laws did not appear to decrease during these months.

  • The Dutch Authority for the Financial Markets (“AFM“) and the Dutch Central Bank (De Nederlandsche Bank, “DNB“) published a Joint Statement on the progress of the IBOR transition in the Netherlands. They also published the results of the consultation on the Regulation on Sound Remuneration Policies 2021 (Regeling beheerst beloningsbeleid Wft 2021).
  • DNB published the exploratory study ‘Perspectives on Explainable AI in The Financial Sector’ and four questions about unregistered crypto service providers. As a follow-up to the bill discussed in our News Updates of 6 April 2021, 3 November 2020 and 4 June 2020, DNB also drew attention (only in Dutch) to the 17 September 2021 deadline for life insurers and non-life insurers from outside the European Economic Area to submit a plan to DNB to cease providing services to the Netherlands.
  • The European Central Bank (“ECB“) decided not to extend its recommendation that all banks limit dividends beyond September 2021. DNB follows ECB’s lead concerning the less significant credit institutions under its direct supervision.
    The ECB also published the results of the 2021 stress test and a joint report, with the European Systemic Risk Board, on Climate-related risk and financial stability.
  • The EBA launched consultations on technical standards on risk retention requirements under the Securitisation Regulation, draft Guidelines on the limited network exclusion under the revised Payment Services Directive, and technical standards to identify shadow banking entities. The EBA also published its final Guidelines on internal governance, final revised Guidelines on sound remuneration policies, final draft technical standards to improve supervisory cooperation for investment firms, final Guidelines on threshold monitoring for establishing an intermediate EU parent undertaking, amended technical standards on resolution planning reporting, a methodological guide to mystery shopping, the results of its 2021 EU-wide stress test, and a peer review on the prudential assessment of acquiring qualifying holdings.
  • The EIOPA launched consultations on the revision of the Solvency II Guidelines on contract boundaries and the valuation of technical provisions, the supervisory statement on supervising run-off undertakings, and the amendments to the supervisory reporting and disclosure requirements under Solvency II. The EIOPA also published its Financial Stability Report, three publications on sustainable finance, Opinion on insurance undertakings using techniques to mitigate risk, a supervisory statement on supervisory practices and expectations in case of breach of the Solvency Capital Requirement, a supervisory statement on the ORSA in the context of COVID-19, annual report on supervisory activities in 2020, and follow-up report on the peer review of key functions.
  • The ESMA and the EBA published their revised final joint Guidelines on assessing the suitability of management body members and key function holders. The ESMA also launched consultations on the review of RTS on transparency requirements under the Markets in Financial Instruments Regulation, draft Guidelines on certain aspects of the MiFID II remuneration requirements, and draft RTS under MiFIR regarding suitability assessments of the management body members of data reporting service providers. The ESMA also published a public statement on the prospectus disclosure and investor protection issues raised by special purpose acquisition companies, its report on the provision of banking-type ancillary services by central securities depositories, a public statement to remind firms that the receipt of payment for order flow raises significant investor protection concerns, and the results of the 2020 common supervisory action on MiFID II suitability requirements.
  • The Basel Committee on Banking Supervision and the World Bank published a joint global survey ‘Proportionality in bank regulation and supervision’.

Authors:

Compliments of Houthoff – a member of the EACCNY.