On 16 June 2023, the European Banking Authority (EBA) published a report on the money laundering and terrorist financing (ML/TF) risks associated with EU payment institutions.
Payment institutions are obliged entities under the Fourth Money Laundering Directive which means that they are subject to the same anti-money laundering / countering the financing of terrorism (AML/CFT) requirements as other financial institutions in the EU. Where applicable, the activities of payment institutions as payment service providers are also governed by the Transfer of Funds Regulation. There are nearly 900 authorised payment institutions in the EU.
In 2022, the EBA assessed the scale and nature of ML/TF risk in the payment institutions sector. It considered how payment institutions identify and manage ML/TF risks and what supervisors do to mitigate those risks when considering an application for the authorisation of a payment institution and during the life of a payment institution. The EBA’s findings suggest that generally, institutions in the payments sector do not manage ML/TF risk adequately ,nor are all Member State competent authorities currently doing enough to effectively supervise the sector.
Specifically, the EBA’s findings suggest the following:
- The AML/CFT internal controls in payment institutions do not seem robust enough to mitigate the ML/TF risks identified.
- Not all Member State competent authorities base the frequency and intensity of on-site and off-site supervision on the ML/TF risk profile of individual payment institutions, and on the ML/TF risks in that sector.
- Supervisory practices at authorisation vary significantly, and AML/CFT components are not consistently assessed. As a result, payment institutions with weak AML/CFT controls can operate in the EU and may establish themselves in Member States where the authorisation process is perceived as less stringent to passport their activities cross-border afterwards.
- There is no common approach to the AML/CFT supervision of agent networks, or the AML/CFT supervision of payment institutions with significant agent networks. The use of agents by payment institutions carries a significant inherent ML/TF risk, especially in a cross-border context.
The findings from the assessment will be feeding into the EBA’s bi-annual ML/TF risk assessment exercise.