Access and Inspection Right
The „Access and Inspection Right“ stands as a key concept, particularly highlighted in the 4th and 5th AMLDs and further detailed within the German GwG and the BaFin Interpretation and Application Guidance. This principle underscores the rigorous compliance standards and supervisory mechanisms that obliged entities must adhere to, reinforcing the EU’s commitment to combating money laundering and terrorist financing.
Access and Inspection Right – Obligation to tolerate
Unpacking the AML Frameworks
The 4th AMLD (Directive (EU) 2015/849) set a robust foundation, mandating Member States to ensure that competent authorities have adequate powers to monitor compliance effectively, including the authority to compel the production of relevant information and perform on-site and off-site checks. This Directive emphasized the need for a risk-based approach to supervision, adapting the intensity of oversight to the risk profile of the obliged entities.
Building on this foundation, the 5th AMLD (Directive (EU) 2018/843) introduced significant amendments to enhance cooperation and information exchange among Member States and between Member States and European Supervisory Authorities (ESAs). It further emphasized the need for adequate supervision, including the capability to conduct on-site and off-site supervision and to take appropriate measures in case of breaches.
German GwG and BaFin Guidance
In Germany, the GwG closely aligns with the EU’s Directives, detailing the access and inspection rights of supervisory authorities. Section 51(3) specifically grants authorities the right to conduct inspections without specific cause, underlining the obliged entities‘ duty to tolerate such measures. This is integral to ensuring adherence to AML standards and the timely identification and rectification of compliance issues.
The BaFin Interpretation and Application Guidance offers further clarity on these obligations within the German context, specifically addressing the cooperation obligations of obliged entities. It reinforces the authority of BaFin’s personnel and designated auditors to enter and inspect business premises during normal business hours, a critical aspect of maintaining the integrity of the financial system.
Implications for Obliged Entities
For obliged entities, these regulations underscore the importance of maintaining transparent operations and being prepared for regulatory inspections. The „obligation to tolerate“ signifies that entities must facilitate the supervisory activities of competent authorities, ensuring that any requested information is readily available and that their operations are aligned with AML compliance requirements.
The „Access and Inspection Right/Obligation to Tolerate“ is a cornerstone of the EU’s AML regulatory framework, ensuring that competent authorities have the necessary tools to enforce compliance and safeguard the financial system against illicit activities. For obliged entities, understanding and adhering to these requirements is not just a legal obligation but a fundamental aspect of operating within the EU’s financial landscape, highlighting the collective effort required to combat money laundering and terrorist financing effectively.
Article 48 of the 4th AMLD () mandates that Member States ensure competent authorities are effectively overseeing and ensuring compliance with the Directive. It highlights the authorities‘ rights and obligations regarding access and inspection to monitor compliance effectively.
- Monitoring and Compliance: Competent authorities are required to effectively monitor and ensure compliance with the AMLD, possessing adequate powers, including compelling the production of relevant information and performing checks.
- Resources and Standards: These authorities must have sufficient financial, human, and technical resources to fulfill their duties while maintaining high professional standards, confidentiality, and data protection.
- Enhanced Supervisory Powers: Specifically for credit institutions, financial institutions, and gambling service providers, authorities have enhanced supervisory powers.
- Supervision of Establishments: Authorities must supervise establishments to ensure they comply with national provisions transposing the Directive, including taking temporary measures for serious failings.
- Cooperation for Effective Supervision: There’s an obligation for authorities in the Member State where the obliged entity operates to collaborate with those where the entity has its head office, ensuring effective Directive supervision.
- Risk-Based Approach: Authorities should understand the risks of money laundering and terrorist financing in their jurisdiction, have access to all relevant risk-associated information, and adjust the supervision intensity based on the risk profile of obliged entities.
- Periodic Risk Assessment Review: The risk profile assessment for money laundering and terrorist financing of obliged entities should be periodically reviewed, especially after significant events or operational changes.
- Review of Discretion and Policies: Competent authorities must consider the obliged entities‘ degree of discretion, reviewing the risk assessments and the adequacy of internal policies and controls.
- Role of Self-Regulatory Bodies: Member States may allow certain supervisory functions to be performed by self-regulatory bodies, provided they comply with the same standards as competent authorities.
- Guidelines for Risk-Based Supervision: By 26 June 2017, the European Supervisory Authorities (ESAs) are tasked with issuing guidelines on risk-based supervision, taking into account the nature and size of the business.
In summary, Article 48 outlines the comprehensive framework within which competent authorities are granted rights and are obligated to access, inspect, and enforce compliance measures to combat money laundering and terrorist financing, emphasizing a tailored, risk-based approach.
The amendments to Article 48 of Directive (EU) 2015/849 introduced by the 5th Anti-Money Laundering Directive (AMLD) (Directive (EU) 2018/843) enhance the framework for the supervision of obliged entities and the cooperation between competent authorities within the EU. The focus on „Access and inspection right/obligation to tolerate“ can be summarized as follows:
- Enhanced Cooperation and Information Exchange:
- Member States are required to communicate to the European Commission a list of competent authorities responsible for supervising the obliged entities listed in Article 2(1), including their contact details, ensuring this information is kept updated.
- A register of these authorities will be published on the Commission’s website to facilitate effective cooperation and information exchange among Member States and between Member States and European Supervisory Authorities (ESAs).
- Supervisory Powers and Resources:
- Competent authorities must have adequate powers, including compelling the production of relevant information and performing checks, and must be equipped with adequate financial, human, and technical resources to carry out their functions.
- Staff of these authorities are required to be highly skilled, maintain integrity, and adhere to professional standards, including confidentiality, data protection, and avoiding conflicts of interest.
- Supervision of Obliged Entities:
- Competent authorities in the Member State where an obliged entity operates must supervise compliance with the national provisions transposing the Directive.
- Special provisions are made for credit and financial institutions within a group, where competent authorities of the Member State where a parent undertaking is established must cooperate with those in other Member States to supervise group establishments and ensure the implementation of group-wide policies and procedures.
- Remedial Measures for Non-Compliance:
- Member States must ensure that all obliged entities are subject to adequate supervision, including on-site and off-site supervision, and must take appropriate and proportionate administrative measures to address any breaches.
- Temporary Measures for Serious Failings:
- For certain establishments, competent authorities may take temporary and proportionate measures to address serious failings that require immediate remedies. These measures are to be terminated once the failings are rectified, potentially with the assistance or cooperation of competent authorities from the home Member State of the obliged entity.
These amendments emphasize the obligation of Member States to ensure that obliged entities are adequately supervised and that competent authorities are well-equipped and empowered to enforce compliance with the AMLD. The amendments also underscore the importance of cooperation and information exchange among Member States and with ESAs to enhance the effectiveness of the anti-money laundering and counter-terrorist financing framework within the EU.
Section 51(3) of the German GwG outlines the supervisory authority’s rights and obligations concerning access and inspection of obliged entities, particularly focusing on ensuring compliance with the Act’s requirements.
- Inspection Authority: The supervisory authority designated under section 50 no. 1, specifically for entities mentioned in section 50 nos. 1 (g) and (h), along with authorities under section 50 nos. 3 to 9, have the right to conduct inspections at obliged entities to verify compliance with the GwG.
- Inspection Grounds: Inspections can be carried out without a specific reason, both on-site and at locations other than the obliged entities‘ premises. This provision ensures that supervisory authorities can perform their duties proactively, without needing to justify each inspection, thus enhancing the effectiveness of the compliance checks.
- Delegation of Inspections: The supervisory authorities have the option to delegate the responsibility for conducting these inspections to other individuals or institutions through contractual arrangements. This flexibility allows for a more extensive and specialized inspection process, potentially leveraging external expertise.
- Risk-Based Approach: The frequency and intensity of the inspections must align with the risk profile of the obliged entities in terms of their vulnerability to money laundering and terrorist financing. This implies a tailored approach to supervision, where resources are allocated more intensively to higher-risk entities.
- Re-evaluation of Risk Profile: The risk profile of obliged entities should be periodically reassessed, as well as in response to significant changes in the entity’s senior management or business activities. This ensures that the supervisory approach remains dynamic and responsive to evolving risks.
In essence, Section 51(3) of the German GwG establishes a framework for supervisory authorities to access and inspect obliged entities, with a focus on a risk-based and proactive approach to monitoring compliance with anti-money laundering and counter-terrorist financing regulations. It underscores the entities‘ obligation to tolerate such inspections, which are designed to be flexible and adaptive to the risk landscape.
- Directive (EU) 2015/849 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32015L0849
- Directive (EU) 2018/843 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32018L0843
- German Anti-Money Laundering Act (Geldwäschegesetz – GwG) https://www.bafin.de/SharedDocs/Downloads/EN/Aufsichtsrecht/dl_gwg_en.html
- BaFin-Interpretation and Application Guidance on the German Money Laundering Act (October 2021) https://www.bafin.de/SharedDocs/Downloads/EN/Auslegungsentscheidung/dl_ae_auas_gw2021_en.html