Combating the flow of dirty money is a complex problem that has existed for a while. For Europe’s economy to remain secure and stable, the fight against money laundering and terrorism financing is essential. EU regulations must be effectively implemented and consistently monitored to fight criminality and safeguard its financial system. And this highlights the importance of the EU AML framework, which introduces a watchdog that will zoom in to potential cases of money laundering in the political bloc.
In an effort to tighten the EU’s anti-money laundering and countering terrorism financing (AML/CFT) regulations, the European Commission introduced an ambitious package of legislative proposals in July 2021. Part of this package is the establishment of a new EU authority. Additionally, this aims to reduce gaps and loopholes that enable criminals to use the financial system in supporting terrorism or laundering. Simultaneously, this targets to improve strategies that detect suspicious transactions and activity.
The new measures significantly improve the current EU framework by considering fresh and growing issues brought on by technological advancements, including virtual currencies, more streamlined financial flows in the Single Market and the global reach of terrorist groups.
New EU AML Authority (AMLA)
The cornerstone of the legislative package is the formation of a new EU Authority that will revamp AML/CFT regulation in the EU and improve coordination between Financial Intelligence Units (FIUs). Moreover, the new Anti-Money Laundering Authority (AMLA) at the EU level will serve as the primary organisation coordinating state agencies to ensure the private sector accurately and consistently complies with EU regulations.
AMLA will assist FIUs in enhancing their analytical capabilities on illegal flows and turning financial intelligence into a valuable resource for law enforcement organisations. In addition, AMLA will focus particularly on the following:
- the establishment of a single integrated system of AML/CFT supervision throughout the EU
- active oversight of risky financial firms across member states
- monitoring and coordination of national supervisors in charge of other financial and non-financial entities
- strengthening of coordination and collaboration between national FIUs
The establishment of a new AMLA is part of a plan in the implementation of the sixth AML/CFT Directive (AMLD6). This is because digital assets now play a significantly larger role in the economy than they did in 2018, when the AMLD5 was introduced. AMLD6 is meant to address the gap that previous initiatives caused in the reporting and enforcement across EU member states.
The Markets in Crypto Assets (MiCA) framework is a component of this strategy to enhance financial stability, market integrity and the safety of consumers. Also, the Transfer of Funds Regulation (ToFR) is another regulation that mandates digital asset exchanges to have thorough knowledge of every consumer.
On the other hand, policymakers in the EU have considered making the authority a more powerful body to combat illegal financiers. As part of the proposal, a new EU AML watchdog will take over the AML responsibilities of the European Banking Authority (EBA). The EU’s response to the regulatory and supervisory architecture flaws exposed during the financial crisis was the establishment of the EBA in November 2010. The EBA is an independent EU regulatory agency that seeks to guarantee efficient and uniform prudential regulation and supervision throughout the European banking industry.
The EU AML/CFT rules in the crypto industry
Currently, the EU AML/CFT regulations only apply to certain types of crypto-asset service providers: fiat-to-crypto exchange service providers and custodian wallet providers. By extending these regulations to the whole cryptocurrency industry, the new proposal will compel all service providers to investigate their customers. All cryptocurrency asset transfers—including those using Bitcoin—will be completely traceable after these amendments, allowing for the detection and prevention of their potential use in money laundering and terrorism funding. Further, the complete application of EU AML/CFT regulations to the cryptocurrency industry will also prohibit anonymous crypto asset wallets.
More on the EU AMLA Proposal
The new European AML watchdog will play a regulatory function upon the approval of the legislation. A single rulebook is included in the proposals, which the new watchdog would implement, enforcing standard regulations on customer checks, cash limits and reporting requirements across the region. A project to enhance financial intelligence unit coordination is also underway. These units are the national centres that examine bank and other company information on detecting suspicious activity.
The next steps
The passing of the legislative package will now be debated by the European Parliament and Council. Thus, the EU Commission anticipates a swift legislative procedure. By 2024, the AMLA should be operational, and by 2026, it would have the authority to monitor some cross-border financial institutions and penalise businesses that violate money-laundering laws.
The new AML watchdog of the EU would be amongst the first regulatory organisations with the power to monitor money laundering throughout significant portions of Europe if it were to become law. According to a Chainalysis report from January, individuals laundered cryptocurrencies worth $8.6 billion in 2021, a 25 per cent rise over the previous year.
Bolder solutions for stricter rules
Stringent reporting and compliance requirements come with new and stricter regulations in the cryptocurrency sector. This will add to the workload for cryptocurrency traders and fund managers.
To ensure compliance amidst introduction of new regulatory frameworks, crypto fund managers and investors can turn to Bolder Group, a global independent organisation that also specialises in digital asset fund administration. We have a strong presence in the EU with offices in strategic centres, such as the Netherlands, Switzerland and Luxembourg.