On 12 May 2020, the European Banking Authority (EBA) published the results of its inquiry into dividend arbitrage schemes, which looked into the actions of prudential and anti-money laundering and countering the financing of terrorism (AML / CFT) supervisors in dealing with such schemes.
In May 2019, the EBA carried out a survey of competent AML/CFT authorities to gain an understanding of whether dividend arbitrage trading schemes were treated as tax crimes and, consequently, whether the handling of proceeds from such schemes would amount to money laundering under the Fourth Anti-Money Laundering Directive. In July 2019, the EBA followed up this survey with a survey of prudential supervisors in order to gain an understanding of how financial institutions’ involvement in such schemes complied with the prudential framework and in particular with the provisions on institutions’ governance arrangements within the Capital Requirements Directive IV.
The report now published by the EBA summarises the findings in relation to each survey and sets out what competent AML/CFT and prudential authorities should do to mitigate the risks associated with dividend arbitrage trading schemes, considering that tax authorities are generally better positioned to detect and combat tax crime.
The EBA has also published a 10-point action plan which includes the following action involving amending the:
- EBA Guidelines on Internal Governance, in order to ensure that the management body develop, adopt, adhere to and promote high ethical and professional standards. The amended draft Guidelines will be consulted by Q3 2020 and finally adopted by Q1 2021;
- EBA Guidelines on the Assessment of the Suitability of Members of the Management Body and Key Function Holders in order to ensure that tax offences, including where committed through dividend arbitrage schemes, are considered in the assessment. The amended draft Guidelines is planned to be consulted by Q3 2020 and to be finally adopted by Q1 2021; and
- EBA Guidelines on Supervisory Review and Evaluation Process (SREP) with regard to the section on governance, in order to include an appropriate reference to tax crimes, such as dividend arbitrage schemes. The amended draft Guidelines is planned to be consulted by Q2 2021 and finalised by Q4 2021, but some first elements may be included in an Opinion on the prudential treatment of ML/TF risks under SREP to be published by Q4 2020.