EBA-Report on money laundering and terrorist financing (ML/TF) risks associated with EU payment institutions
The European Banking Authority (EBA) published a report on June 16, 2023, assessing the money laundering and terrorist financing (ML/TF) risks associated with EU payment institutions.
Key findings from the report include:
- Inadequate ML/TF Risk Management: The EBA found that generally, institutions in the payment sector do not adequately manage ML/TF risks. AML/CFT internal controls in these institutions are often insufficient, despite the high inherent risk in the sector.
- Ineffective Supervision: The report suggests that not all competent authorities effectively supervise the sector. This has allowed payment institutions with weak AML/CFT controls to operate in the EU, especially in Member States with less stringent authorization and supervision processes.
- Impact on Financial Integrity and Access: Failure to manage these risks can affect the integrity of the EU’s financial system and undermine efforts to improve access to financial services.
- Recommendations for Improvement: The EBA recommends more robust implementation of guidelines by supervisors and institutions to mitigate ML/TF risks.
The EBA’s report emphasizes the need for a holistic approach to tackling ML/TF risks across all financial sectors within its remit. The findings will contribute to the EBA’s bi-annual ML/TF risk assessment exercise under Directive (EU) 2015/849.
Critical findings
The EBA’s report on ML/TF risks associated with EU payment institutions reveals several critical findings:
- Risk Management Inadequacies: Payment institutions may not effectively assess and manage ML/TF risks. This includes insufficient AML/CFT internal controls and a lack of effective risk management systems.
- Higher ML/TF Risk Factors: These risks are attributed to factors like the customer base, cash-intensive services, occasional transactions, high-risk jurisdictions, high volume and speed of transactions, use of new technologies, and distribution channels involving intermediaries.
- Variability in Supervision: The report highlights inconsistency in supervisory practices, with varying levels of frequency and intensity in monitoring institutions. This leads to a disparity in how risks are managed across different Member States.
- Risks from Non-Face-to-Face Business and Intermediaries: The widespread use of non-face-to-face relationships and intermediaries like agents, without adequate risk management, is a significant concern, as it may increase ML/TF risk exposure.
- AML/CFT Weaknesses: Common weaknesses in the sector include poor ML/TF risk awareness, insufficient transaction monitoring, and inadequate implementation of controls and internal governance arrangements.
- Concerns in Authorisation and Supervision: There are variations in how AML/CFT controls are assessed during the authorisation of payment institutions. Additionally, the allocation of supervisory resources and the frequency of inspections are less than in the banking sector, raising concerns about the adequacy of AML/CFT supervision.
The findings of this report are feeding into the EBA’s bi-annual ML/TF risk assessment exercise, and addressing these issues is crucial for protecting the EU’s financial system from financial crimes and improving access to financial services.