ICQ Log - Financial Crime:

EU and US AML/CFT Reform - Past & Future

Last Updated: 09 September 2021

As the scale of financial crime continues to escalate, the global legislative environment has evolved to create a more transparent financial system and standardised approach to the regulation of Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT). In the last decade we have seen several legislative changes in AML/ CFT in the European Union (EU) and the United States (US). Rachel Woolley , Global Director of Financial Crime,  Fenergo  and  Shane Martin , Of Counsel,  Walkers  with the support of the Compliance Institute’s Financial Crime Compliance Working Group, examine the reforms contained within the proposed and existing legislative changes in the EU and US, given the impact on the Irish market.

As the scale of financial crime continues to escalate, the global legislative environment has evolved to create a more transparent financial system and standardised approach to the regulation of Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT). In the last decade we have seen several legislative changes in AML/ CFT in the European Union (EU) and the United States (US).

This article will specifically focus on the EU and US, given the impact on the Irish market, and examine the reforms contained within the proposed and existing legislative changes in the EU and US.

The EU View
The European Commission’s package of legislative proposals published on 20 July 2021, aims to bring about a form of centralised supervision by establishing an EU AML/CFT Authority (AMLA) armed with significant enforcement powers. Consistency in the application of AML/ CFT requirements on the ground is also being targeted through the deployment of a single rulebook in the shape of new Regulation on AML/CFT (New Regulation) and a new Directive (New Directive) supported by Regulatory Technical Standards prepared by AMLA.

The New Regulation builds on the EU AML Directives and the Funds Transfer Regulation. The New Regulation will redefine the boundaries of the financial sector to include newer financial services such as cryptocurrency (Crypto) and Virtual Asset Service Providers. The Funds Transfer Regulation is being broadened to include transfers of Crypto and other virtual assets.

Provisions requiring national transposition and therefore not considered appropriate for a Regulation, such as rules concerning national supervisors and Financial Intelligence Units (FIUs) in member states, will be dealt with in the New Directive. There will be continued focus on beneficial ownership with harmonised rules in the New Regulation on the identification and capture of beneficial owners within centralised registers of beneficial ownership. The creation of a cross-border system between national bank account registers is also being proposed to enable FIUs to access information from other member states. These developments are unlikely to diminish the role of national supervisors who will have a new population of firms to supervise and a strengthened hand with the clarity provided by harmonised rules.

The US View

There has been a growing consensus amongst US legislators, regulators, law enforcement and those within the industry, that current industry practices and requirements are ineffective, and do not optimally serve the original purpose of the Bank Secrecy Act (BSA): to assist law enforcement to deter and combat financial crime. The US Anti- Money Laundering Act of 2020 (US AMLA) intends to increase effectiveness and improve the industry response to financial crime, laying the foundations for a more holistic, risk-based approach.

The US AMLA encourages technological innovation and the adoption of new technology by Financial Institutions (FIs), for example via third party technology providers, to more effectively counter money laundering and the financing of terrorism. US AMLA also requires the Financial Crimes Enforcement Network (FinCEN) to establish national Strategic AML Priorities for FIs, regulators and examiners to incorporate into their corporate AML programs, rules, guidance, and examinations.

Efforts are underway to address a gap in the current regulatory regime that allows the use of corporations and shell companies to obscure sources of wealth. The Corporate Transparency Act (CTA) will see business entities required to identify beneficial owners to the federal government, as well as the creation of a government-maintained registry of beneficial owners of certain entities formed or registered to do business in the US. FinCEN is obliged to promulgate these regulations by December 26, 2021.

The US Treasury is expected to issue a report in March 2022, outlining the anticipated plans, goals, and resources necessary to implement this current set of regulations. This report will provide a detailed roadmap of what lies ahead over the next three years.

Conclusion

To improve the industry response to financial crime, it is essential to enable more effective collaboration across all industry stakeholders; from legislators, supervisory authorities, and law enforcement to the entities subject to AML/CFT legislation and their technology providers. Time will tell whether the efforts that are currently underway will enable a more effective and collaborative AML/CFT regime within and between the EU and the US.

Authors: Rachel Wooley

Global Director of Financial Crime at Fenergo

Shane Martin

Regulatory Compliance & Data Privacy Lawyer, Of Counsel at Walkers

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ICQWinter Edition 2021

This article was taken from the Compliance Institute's ICQ Winter Edition 2021