The creation of a single rulebook and supranational authority on Anti-Money Laundering and the Combating of Financial Terrorism (AML/CFT) with direct supervisory powers was only a question of time, Kenneth Farrugia states.
The Malta Financial Services Authority (MFSA) CEO, on the September 2023 issue of 'Views - The Eurofi Magazine', said that money knows no borders and neither does crime. “And in an area created to facilitate and incentivise cross-border activity, it was necessary to set overarching rules that do not allow for national influences.”
In his contribution, Mr Farrugia discussed the Anti-Money Laundering Package proposed by the European Commission in 2021. He stated that after several years of legislative processes, the Package comprising three regulations and a directive, is nearing its end. He remarked that although the project “suffered some delays, this was to be expected due to its highly sensitive nature and everyone wanting to contribute to develop the best possible solution.”
The AML/CFT package is based on three measures: the EU “single rulebook” regulation, the sixth AML directive, and the establishment of the European Anti-Money Laundering Authority (AMLA).
Mr Farrugia reflected that the AML Rulebook Regulation is the other “main building block” of the package. The rulebook is set to conduct due diligence on customers, transparency of beneficial owners and the use of anonymous instruments (such as crypto assets) and new entities, such as crowdfunding platforms. This rulebook will also include provisions on golden passports and visas.
He highlighted that “moving away from a directive to a regulation as the instrument of choice, will limit as much as possible any arbitrage between Member States, while also ensuring as uniformly as possible, an application of the same AML/CFT obligations in each one.”
On the other hand, ALMA will have a supervisory and investigative role to guarantee adherence to ALM/CFT requirements across Europe.
“The creation of a supranational AML/CFT authority is one of the major developments being proposed. A driving factor behind the setting up of AMLA was the variation in the level, quality, and effectiveness of supervisory practices across Europe, leading to money laundering scandals involving European credit institutions,” Mr Farrugia explained.
He argued that while the proposed legislative package “offers promising solutions” the establishment of AMLA has its challenges.
Firstly, Mr Farrugia remarks on the increased number of entities possibly subject to direct supervision of AMLA and its mandate when it comes to restrictive measures. “There have been repeated warnings that this will require AMLA to have an even more substantial budget to, among others, recruit additional staff and bolster its technological capabilities.”
Expanding further on the recruitment needed for AMLA, he questioned whether the authority could find the necessary human resources to effectively execute its mandate. He also remarked that recruiting and retaining staff in the specific field is a challenge, with authorities already competing with one another over a “limited pool of talent.”
“AMLA’s responsibilities will require additional skilled professionals which may potentially strain the human resources capabilities of national authorities, as they lose their skilled regulators to be the supranational body,” Mr Farrugia argued. He also referenced cross-cultural and language barriers, as an obstacle that AMLA must tackle for it to foster effective communication and collaboration among staff and national authorities.
In addition, the directive proposed by the Commission, includes regulations at national level regarding the oversight of financial activities and the operations of Financial Intelligence Units. It also gives authorisation to competent authorities to access necessary and reliable information.
Mr Farrugia said that to ensure transparency and prevent illicit activities, advanced technological solutions “must be deployed to verify beneficial ownership information and safeguard against the misuse of corporate structures and robust monitoring.” He believes that tracing solutions will also be crucial in the realm of cryptocurrency, demanding innovative technological approaches.
He foresees possibilities of regulatory uncertainty during AMLA’s initial stages, especially as it navigates its scope, powers and interactions with existing supervisory bodies and national authorities. “Addressing the technological and human resource challenges will be critical for its success.”
Nonetheless, he concludes that by overcoming these challenges, leading by example and fostering greater cooperation and consistency, the EU can “bolster its financial system’s integrity and enhance its credibility in the global fight against financial crime.”
