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Given the cross-border nature of financial crime, the creation of an AML/CFT Authority at Union level (AMLA) is considered an appropriate measure to address shortcomings of the existing system. AMLA will become responsible for directly supervising and making decisions towards financial sector obliged entities with a ‘high-risk profile’. AML/CFT supervision of other financial sector obliged entities and non-financial obliged entities will, for the time being, remain primarily at national level. AMLA is expected to assume most of its tasks and powers by mid-2025.
Legal Framework
Primary EU law applicable to the new AML/CFT supervisory system is Article 114 TFEU (‘harmonisation’ of national rules).
Secondary EU law includes, among others,
- a regulation establishing a new EU AML/CFT Authority;
- a regulation on AML/CFT requirements;
- a funds transfer regulation (recast);
- a directive (6th) on national mechanisms for ML/TF prevention; and
- acts developed by AMLA such as regulatory technical standards, guidelines, recommendations, and opinions.
It is within that framework that AMLA is entitled to fulfil its mandate.
‘High-Risk’ Entity
Only a limited number of obliged entities (expectedly 40) will be directly supervised by AMLA.
To qualify, the entity must
- belong to the financial sector (including crypto-asset service providers);
- operate in at least six member states through multiple establishments or the freedom to provide services; and
- have a residual risk profile classified as ‘high’ under the relevant risk methodology.
Decentralised Agency
The new AML/CFT supervisory system comprises AMLA and national authorities with an AML/CFT supervisory mandate (national AML/CFT supervisors).
Direct supervision of ‘high-risk’ entities will be undertaken by Joint Supervisory Teams led by AMLA, including staff of national AML/CFT supervisors.
With respect to other financial sector obliged entities and non-financial obliged entities, AMLA will act as an indirect supervisor through oversight of national AML/CFT supervisors.
What Is To Be Done?
The establishment of AMLA will result in enhanced AML/CFT supervision for all obliged entities as national AML/CFT supervisors will come under increased scrutiny by AMLA.
BaFin has already pointed out that it will step up its AML/CFT oversight and audit activities, including special audits under Sec. 44 German Banking Act (KWG).
As a primary step, obliged entities should review their AML/CFT risk analysis, internal policies, procedures, and controls, also regarding the implementation of targeted financial sanctions, to minimise risks of sanctions and penalties.
