On 4 October 2019, the Joint Committee of the European Supervisory Authorities (ESAs) published its second opinion on the risks of money laundering and terrorist financing affecting the EU’s financial sector. In drafting the opinion, the ESAs took into account the views expressed by Member State competent authorities (NCAs) through a questionnaire related to money laundering / terrorist financing risks and supervisory activities carried out in 2016 and 2017.
In the opinion the ESAs set out current and emerging risks identified by NCAs that cut across all sectors and provide a contextual background to these risks. At the time of writing the opinion, the ESAs identify that the main cross-cutting risks arise from Brexit; new technologies; virtual currencies; legislative divergence and divergent supervisory practices; weaknesses in internal controls; terrorist financing; and de-risking.
One key challenge, according to the ESAs, is the uncertainty generated by the UK’s withdrawal from the EU and the associated concerns regarding NCAs ability to adequately supervise the changing population of firms relocating to their Member States following the UK’s withdrawal.
As with the first ESA opinion, NCAs remain concerned about firms’ implementation of internal controls and their management of emerging risks, particularly the implementation of customer due diligence measures.
The opinion also covers sector-specific risks. In terms of credit institutions, the opinion reports that NCAs appear to be relatively satisfied that the required systems and controls have been put in place, but are more concerned about: (i) the quality and effectiveness of these controls when applied in practice; and (ii) the level of credit institutions’ understanding of risks that they are exposed to. This gives rise to significant concerns that some credit institutions are failing to effectively detect and deter money laundering / terrorist financing and that more work in this area may be required from NCAs to address these shortcomings.
The ESAs have also developed an interactive tool that gives NCAs and firms a quick snapshot of all of the money laundering and terrorist financing risks covered in the opinion. The interactive tool is available here and is based entirely on the information contained in the opinion.