What are AML/CFT colleges and when were they established?
Anti-Money Laundering/Countering Financing of Terrorism colleges are permanent structures created for the purpose of cooperation and exchange of information between supervisory authorities from various Member States of the European Union and third countries responsible for supervision in the scope of counteracting money laundering and terrorist financing. The institution is relatively new (established in December 2019), however, the recommendations of the Financial Action Task Force (FATF) issued in 2012 have already highlighted the need for cross-border cooperation of supervisors1.
In the fourth AML Directive (EU) 2015/849, the European Commission included provisions on cooperation with European supervisory authorities and financial intelligence units from various Member States2. In turn, the fifth AML Directive (EU) 2018/8433 clarified these provisions by introducing, inter alia, contact points (persons responsible for receiving requests for information from financial intelligence units from other Member States) and a statement that Member States shall not prohibit the exchange of information and shall not impose excessively restrictive requirements in this regard. The provisions of the Directive provided the basis for extending the scope of information exchange between supervisory authorities and additionally three European authorities: the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA). On the 16th of December 2019 these authorities issued joint guidelines - JC/2019/81 ("guidelines") on cooperation and information exchange between authorities supervising financial and credit institutions4.
The meetings of supervisors in the form of AML / CFT colleges have now been established as a pillar of cooperation. They are going to be permanent structures which include supervisors responsible for the oversight of the same financial institution if it operates in at least three Member States or also outside of the European Union. This form of cooperation aims to ensure that all supervisors have access to relevant information and use it for a coordinated approach towards specific institutions.
A pioneer and international first-mover was a college of supervisors established for Danske Bank back in 2015, before the regulatory framework was even issued. It did not have this degree of formalisation as set-out in current guidelines but addressed the need to closely monitor AML deficiencies detected in the Bank, which related to the violations in its Estonian branch (subject to Estonian Supervisory Authority). Supervisory authorities from countries where Danske Bank operates as well as EBA (from 2018) participated in that college. It started reflections on the EU-level on how the interaction between supervisory authorities in countries where cross-border groups such as Danske Bank operate can be further strengthened5. What is even more important it showed the need for this kind of formalised cooperation as discrepancies in the approach may lead to severe consequences6.
According to the guidelines, the AML/CFT colleges for all financial institutions that should be subject to them should be established by the 10th of January 2022. According to the EBA report of the 15th of December 20207, colleges for 10 European banks were established between December 2019 and October 2020. As indicated in the aforementioned EBA report, some Member States were delayed with the implementation of the fifth AML Directive (deadline for its implementation was on the 10th of January 2020) and therefore their supervisors lacked adequate legal grounds to participate in colleges8. This year, however, we can expect the establishment of more colleges, firstly because the deadline set out in the guidelines is approaching, and also because most EU countries have already implemented the fifth AML Directive into national law9.
The colleges consist of permanent members and observers as well as invited participants. Permanent members are representatives of the EBA and national supervisors in the EU jurisdictions in which the entity operates and observers may be financial intelligence units and supervisors from third countries. The invited participants are the financial or credit institutions to which the college relates, auditors or advisors. The lead supervisor manages the college and firstly identifies entities that should participate in the college. The idea of these meetings also implies some flexibility, so if one of the participants believes that another entity should be invited they inform and agree this with other members of the college. EBA indicates two types of meetings:
planned - they may be held once a quarter or twice a year,
ad hoc - in accordance with the accepted practice the entity is supposed to receive information about such a meeting two / three weeks in advance.
The sessions that already were held also had preparatory meetings. In practice, if the financial institution’s exposure to money laundering and terrorist financing risk increases then the frequency of meetings may be higher.
Some of the supervisors already shared experiences from participation in colleges. Especially, Nordic cooperation is quite extensive and might be an inspiration for authorities from other regions of Europe. For example, according to the report published by the Norwegian authority (Finanstilsynet) their focus was made on the local branches of Nordea Bank, Handelsbanken and Danske Bank, systemically important in Norway. Regular meetings took place in the supervisory college for Danske Bank and Handelsbanken through 2020. Finanstilsynet was also involved in assessments of banks' recovery plans as well as in the follow up actions to the on-site inspections conducted in 201910. Also Swedish Financial Supervisory Authority (Finansinspektionen - FI) reported that FI and affected sister authorities sit together on supervisory colleges. Participants meet at least once every six months to discuss risk assessments and ongoing supervision activities. For SEB and Swedbank, which have extensive operations in the Baltic region, the three Baltic supervisory authorities and the European Central Bank have gathered. What is more, to strengthen the cooperation between authorities in the region, FI and Danish Finanstilsynet have taken the initiative to establish a permanent Nordic-Baltic working group. According to the report the group has representatives from the financial supervisory authorities in Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden. The authorities meet at different levels several times a year to exchange observations and information with the aim of becoming more effective in their efforts to combat money laundering and terrorist financing11.
Financial institutions can expect invitations to attend colleges in a dedicated part of the meeting. According to the EBA report, in case of identified irregularities, financial institutions may receive specific questions regarding the remediation plan or may be asked to present actions performed in order to address observations of supervisory authorities. Depending on the formula of the meeting (according to the report from last year, most of the meetings were held remotely), some explanations may be provided in the form of discussions and some supervisors may require written responses. Financial institutions implementing AML / CFT remediation plans or financial institutions with a high exposure to ML / TF risk should be prepared to actively participate in AML / CFT colleges. Increasing cooperation between supervisory authorities and financial intelligence units as well as the growing number of active AML / CFT colleges will increase mid- and long term expectations from banks in terms of readiness to prepare quick and comprehensive answers to questions from supervisory authorities.
The implementation of AML/CFT will enable the systematic exchange of information between supervisory authorities and financial intelligence units from different countries. It is expected that supervisors will have a better knowledge and understanding of AML/CFT irregularities that occur in groups of financial institutions in different jurisdictions and will be able to exchange necessary information on an ongoing basis. That might have an impact on financial institutions who might have new obligations related to reporting irregularities in the scope of AML/CFT processes for the needs of colleges. It is expected that the interest of supervisory authorities and financial intelligence units will be increased and the frequency of regulatory reporting will be greater.
Financial crime is inherently a cross-border phenomenon. According to a report by the European Union Agency for Law Enforcement Cooperation (Europol), it has increased during the last year of the COVID-19 pandemic. The European Commission is involved in the fight against money laundering and terrorist financing and this is reflected in the establishment of AML/CFT colleges that are in line with the trend of international cooperation in the field of AML/CFT. The next step in strengthening this direction will be the establishment of an EU AML/CFT supervisor. The plan for its creation was announced by the European Commission in the communication 2020/C - 164/06 issued on the 7 th of May, 202012. Later this year, an analysis of conclusions regarding the functions of this body, scope of work and its structure is to be presented.
1 So-called 40 FATF Recommendations - International Standards on combating money laundering and the financing of terrorism & proliferation:https://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html).
2 Art. 50-57 of the Directive (EU) 2015/849 of the European Parliament and of the Council of the 20th of May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC.
3 Subsection IIa. Cooperation between competent authorities of the Member States of the Directive (EU) 2018/843 of the European Parliament and of the Council of the 30 of May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU (Text with EEA relevance).
6 “In Danske Bank’s Estonian branch, there have been significant violations of the European and Estonian money laundering rules. In December 2018, ten former employees in the branch were arrested in Estonia. By all accounts, for a number of years employees in the Estonian branch actively carried out and covered up the violations both to the bank's senior management in Copenhagen and to the Estonian Financial Supervisory Authority (EFSA).” - “Report on the Danish FSA’ s supervision of Danske Bank as regards the Estonia case'' the 28th of January 2019, p.2, this case also caused severe reputational damage.
8 For example Bank of Spain and Sepblac (Spanish Financial Supervisory Authority) declared to convene first supervisory colleges for Spanish entities in 2021.
11 https://www.fi.se/contentassets/5a89ed7d9d1a4776b455c64d7d43b460/fis-arbete-mot-penningtvatt-fin-terrorism-eng.pdf, p.21