ML/TF various Q1 2021 | EBA: The risks of de-risking!

In this opinion the EBA notes that notes that de-risking poses ML/TF risks and continues to pose ML/TF risks. The EBA explains why this is the case: because customers affected by de-risking may resort to alternative payment channels in the EU and elsewhere to meet their financial needs. As a result, transactions  may  no  longer  be  monitored,  making  the  detection  and  reporting  of  suspicious transactions and, ultimately, the prevention of ML/TF more difficult.

The EBA also stated that the Risk Factors Guidelines are clear that the application of a risk-based approach does not require firms to refuse or terminate business relationships with entire categories of customers that are considered to present high ML/TF risk, as the risk associated with individual business relationships  may  vary,  even  within  one  category.  The  guidelines  set  out  factors  that  firms should  consider  when  assessing  the  ML/TF  risk  associated  with  a  business  relationship  or occasional  transaction  and  explain  the  need  to  carefully  balance  financial  inclusion  with  the need to mitigate ML/TF risk. 

Further the EBA explains that the  application  of  risk-sensitive  measures  should  enable  more  individuals  and  businesses  to access and use regulated financial services. In the Opinion on the application of customer due diligence  measures  to  customers  who  are  asylum  seekers  from  higher-risk  third  countries  or territories, the  EBA  has,  for  example,  set  out  measures that firms  can  take  to  comply  with AML/CFT requirements in situations where a customer is unable to provide the standard CDD documentation, for example asylum seekers, in order to provide them with an access to basic financial products and services, including a basic bank account. In addition, the EBA is currently reviewing the Risk-based Supervision Guidelines, which  will emphasize  the  importance  for competent authorities of developing a  good  understanding  of  the  ML/TF  risk  through  their sectoral  risk  assessment  and  as  part  of  this,  developing their  understanding  of  why  certain sectors may be affected by de-risking.

In addition EBA stated that the EBA’s Risk-based  Supervision  Guidelines,  currently  being  revised, will  require  competent authorities to communicate their risk assessment and regulatory expectations in terms of the management of that risk to the sectors to ensure that the risk is managed properly, instead of customers being de-risked. 

Final Report on Guidelines ML/TF Factors

On 1 March 2021, EBA published its Final Report on the Guidelines on customer  due  diligence  and  the  factors  credit  and  financial institutions  should  consider  when  assessing  the  money  laundering and  terrorist  financing  risk. These guidelines have been updated regarding: business-wide and individual ML/TF risk assessments; customer due diligence measures including on the beneficial owner; terrorist financing risk factors; and new guidance on emerging risks, such as the use of innovative solutions for CDD purposes.

The guidelines will be translated into the official EU languages and published on the EBA website. The deadline for competent authorities to report whether they comply with the guidelines will be two months after the publication of the translations. The guidelines will apply three months after publication in all EU official languages.