On 4 November 2020, the European Banking Authority (EBA) issued an opinion setting out how prudential supervisors should consider money laundering and terrorist financing risks in the context of the Supervisory Review and Evaluation Process (SREP).

With this opinion, the EBA calls on prudential supervisors to take into account money laundering and terrorist financing (ML/TF) risks in the SREP. When performing the SREP, prudential supervisors are advised to be mindful of the fact that ML/TF risks are not necessarily linked to an institution’s size or financial soundness and that small institutions can nevertheless present significant ML/TF risks.

The EBA expects prudential supervisors to consider ML/TF risks in the SREP in particular in the following components of the SREP, each of which is further examined in the opinion:

  • The monitoring of key indicators.
  • Business model analysis.
  • Assessment of internal governance and institution-wide controls.
  • Assessment of risks to capital.
  • Assessment of risks to liquidity and funding.

The EBA will include guidance on how to take into account ML/TF risks into the SREP in the EBA guidelines on common procedures and methodologies for the SREP and supervisory stress testing (SREP Guidelines) during the upcoming revision of these guidelines which is expected to be completed by end December 2021 as set out in the EBA Roadmap on Pillar 2 Deliverables. In anticipation of the more detailed common guidance as part of the future revision of the SREP Guidelines, the opinion provides advice at a high level on the subject.