The Joint Committee of the European Supervisory Authorities (ESAs) has issued a joint consultation paper on draft regulatory technical standards (RTS) on the measures credit institutions and financial institutions shall take to mitigate the risk of money laundering and terrorist financing where a third country’s law does not permit the application of group-wide policies and procedures.
Article 8 of the Fourth Anti-Money Laundering Directive (4MLD) requires entities subject to it (known as ‘obliged entities’) to put in place anti-money laundering (AML) / counter terrorist financing (CFT) policies and procedures to mitigate and manage effectively the money laundering / terrorist financing risks to which they are exposed. AML / CFT policies and procedures include those necessary for the identification and assessment of money laundering / terrorist financing risk, customer due diligence measures, reporting of suspicious transactions, record-keeping, internal control and compliance management. Where an obliged entity is part of a group, these policies and procedures should be implemented effectively and consistently at group level.
While most third countries’ legal systems will not prevent groups from implementing group-wide AML/CFT policies and procedures that are stricter than national legislation requires, there can be cases where the implementation of a third country’s law does not permit the application of some or all parts of a group’s AML/CFT policies and procedures, for example because the sharing of customer-specific information within the group conflicts with local data protection or banking secrecy requirements.
In such cases, the 4MLD requires obliged entities to ensure that group-wide AML/CFT policies and procedures are implemented effectively across all branches and majority-owned subsidiaries to the extent that local law permits this. Where it does not, obliged entities must take steps effectively to handle the resultant money laundering / terrorist financing risk. However, the 4MLD does not set out in detail what obliged entities should do to manage the money laundering and terrorist financing risk in those situations.
Article 45(6) of the 4MLD requires the ESAs to develop draft RTS that set out what these steps should be.
The deadline for comments on the consultation paper is 11 July 2017.
The ESAs will review the draft RTS based on the responses received to the consultation. They will then be submitted to the European Commission for endorsement before being published in the Official Journal of the European Union.