Anti-money laundering: challenges and learning

AMLA will be charged with i) supervising AML/CFT; ii) supporting greater co-operation between member state Financial Intelligence Units (FIUs); and iii) co-ordinating national authorities to develop regulatory standards and guidance that ensure consistent application and supervision. Supervision is expected to begin during 2027, though AMLA will not be fully operational until 2028.

The establishment of AMLA is taking place in conjunction with a package of legislative changes aimed at creating a common EU AML/CFT rulebook, replacing the current legislative framework where Member States transpose EU directives into national law, with directly applicable regulations across all Member States. Announced on 19 June 2024, the Regulation of the European Parliament and the Council on the prevention of the use of the financial system for money laundering or terrorist financing (‘AMLR’), will apply from 10 July 2027. There will also be a new AML Directive which will cover rules that are not covered by AMLR, intended for public authorities, as well as an extension of the Transfer of Funds Regulations, to include digital assets.

“The creation of AMLA has the potential of being a great step towards more efficient supervision of financial crime risks, still some crucial enablers have to be there, in particular, common rules, obligations and the budgetary means to cover its activities.”

Sylvie Matherat, Senior Global Advisor, Forvis Mazars in France

This article assesses some of the key challenges the new authority will face and considers examples from supervisory regimes that have managed to overcome these challenges and those that have not.

Governance and independence

With many jurisdictions, political parties and industry bodies impacted by and with a vested interest in the success of AMLA, facilitating operational independence to make sure it can carry out its remit free of external pressures is essential.

The creation of an independent and impartial governing board, free to impose decisions on competent authorities (known as NCAs) and supervised entities, (broadly speaking, credit and financial institutions, but including Crypto Asset Service Providers, high-value good traders and even professional sports clubs) will support this independence and build trust. In particular, the ability to impose punitive measures on these supervised entities will go a long way to enhancing AMLA’s credibility and deterring non-compliance with applicable regulations. The effectiveness of AML and Sanctions supervision and enforcement in the United States is often attributed to how it “proactively and aggressively investigates, prosecutes, and convicts individuals for terrorist financing.”

The EU is still some way behind in matching the ability to show a similar force in tackling financial crime and so with AMLA, there is an opportunity to demonstrate that it will not tolerate AML/CTF breaches.

Skills and expertise

The success of AMLA will be reliant on the quality of its people. Attracting and retaining staff with the necessary supervision, enforcement, regulatory and data/technology-related skills, and experience across multiple sectors and jurisdictions, is a huge ask. The appeal of working in such a high-profile organisation must be matched with clearly defined career paths and the investment in appropriate training, methodologies and tools.

The model used by overseas regulators such as the UK’s Financial Conduct Authority (FCA) should be considered. Secondments across supervisory and enforcement bodies and private sector entities have proved effective in sharing knowledge, best practice and quickly upskilling staff. There is also the potential for the European Central Bank (ECB) to support with training and the sharing of its tools and methodologies as it steps back from the responsibilities AMLA will be taking on and there will likely be opportunities for ECB staff to apply for the many roles required at AMLA, expected to total over 400 by mid-2025.

Risk-based approach

AMLA must differentiate itself from the current approach of separate supervisory bodies, many adopting an overly prescriptive, rules-based approach, to focus on outcomes and risks specific to different industries and sectors. The ongoing Money Laundering Regulations consultation in the UK has highlighted the importance of reappraising the value of any regulations and guidance and removing outdated and/or overly prescriptive regulations, such as those relating to mandatory enhanced due diligence checks.

Rules and guidance are of course crucial, but they must be proportionate, flexible and tackle the actual risks faced, as well as accommodate expected future trends. AMLA should take note and embed a risk-based approach into its strategy throughout the agency.

Consistent approach

Consistency across industries and across jurisdictions is critical to the success of any supervisory regime. Whilst AMLA will hold ultimate responsibility for supervision, it will only directly supervise the highest risk financial institutions, meaning, the majority of supervision at the entity level across the EU will still be carried out by national supervisors. As a result, the need for a consistent approach remains extremely important.

“While it is still too early to know for sure which firms will be supervised by AMLA, banks with higher AML/CTF risks can expect, and should prepare for, more rigid and intensive supervision in this area in the near future.”

Gregory Marchat, Group Head of Financial Services Advisory, Forvis Mazars in the UK

The UK’s supervisory regime is shared between the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), His Majesty’s Revenue & Customs, the FCA and the Gambling Commission. As a result, the variation in the approach to test the adequacy of firms’ systems and controls is significant. AMLA have an opportunity to address this by developing a cooperative, unified supervisory culture with the national supervisors.

Innovation

AMLA has an opportunity to set itself up as an innovative, data and technology-enabled agency. Bringing together modern approaches to tackle AML, through leveraging data, using the latest technology, sharing information and applying innovative AI-driven techniques can only be beneficial. The combination of data-led supervision and enforcement, the use of regulatory technology and partnering with financial institutions has proven successful in jurisdictions such as Singapore. The regulator (Monetary Authority of Singapore) is actively supporting initiatives such as the Singapore Fintech Association and Artificial Intelligence and Data Analytics-led programmes to bring together regulation and technology at an early stage in the evolution of new technologies.

“AMLA can optimise its effectiveness by supporting innovative approaches to tackling AML/CFT, leveraging data, technology and information sharing and embedding this in forward-looking strategies, rather than limit itself to the rules-based, traditional means of financial crime supervision and enforcement.”

Luke Firmin, Head of Financial Crime, Forvis Mazars in the UK

What’s next?

Setting up AMLA across the EU involves a huge amount of work, in recruiting specialist staff, establishing a new supervisory structure and coordinating with the ECB to avoid duplications or inconsistencies. The timeline for AMLA to start operations and supervision appears optimistic, but it underlines the importance of preparation. Financial Institutions with a high risk of money laundering or terrorist financing need to be prepared for more intensive supervision in the coming years.

“The creation of AMLA is a significant change for EU supervision and will greatly strengthen the overall coordination capabilities and supervision standards for AML/CFT. This will make the EU a leader in tackling AML/CFT.”

Eric Cloutier, Group Head of Banking Regulations, Forvis Mazars in the UK

By addressing these challenges and drawing lessons from other jurisdictions, AMLA can become a cornerstone in the EU’s fight against financial crime, ensuring a more consistent, risk-based, and innovative approach to AML/CFT supervision.