EU AML Developments: a new EU-wide AML authority with competence over EU financial sanctions compliance | Hogan Lovells

The EU will soon have an EU-wide AML authority for the first time.

The new Authority for Anti-Money Laundering and Countering the Financing of Terrorism (“AMLA”) is being created as part of the four pieces of AML legislation published by the European Commission as part of its 2021 AML package. On 13 December 2023, the Parliament and the Council of the EU reached an agreement on certain important details relating to AMLA.

The 13 December agreement provides that AMLA will directly supervise certain European banks and other financial services providers that operate across borders or are considered “high risk” (the “selected obliged entities”). Up to 40 organisations in total will be in the first selection process. The supervision will be carried out by joint supervisory teams led by AMLA, which will undertake assessments and inspections. The list of selected obliged entities will be reviewed every three years.

AMLA’s remit has been a topic of intense negotiations between the legislators and various stakeholders. One of the key questions – not initially foreseen by the Commission, but which arose after Russia’s invasion of Ukraine – was whether AMLA would have a role relating to financial sanctions.

In what can be seen as something of a coup for the European Parliament, the direct supervisory powers of AMLA will include a financial sanctions compliance role, with AMLA ensuring that selected obliged entities have internal policies and procedures in place to ensure the implementation of targeted financial sanctions, asset freezes and confiscations.

AMLA will also have enforcement powers – in cases of serious, systematic or repeated breaches of directly applicable requirements, AMLA will be able to impose financial penalties on the selected obliged entities.

For obliged entities in the financial sector which are not designated as selected obliged entities, AML supervision will remain principally at the national level. AMLA will mediate and settle disputes between national supervisory authorities, and may take over the supervision of a financial entity in extraordinary circumstances or in the event of certain breaches of EU law.

In respect of the non-financial sector, AMLA will act in a supportive capacity, carrying out reviews and investigating possible breaches in the application of AML regulations. In doing so, it will be able to issue non-binding recommendations. AMLA will also coordinate national financial intelligence units investigating suspected AML breaches.

There was some uncertainty as to which of AMLA, the European Public Prosecutor’s Office or an ad-hoc sanctions authority would be granted a sanctions enforcement role. Whilst Members of the European Parliament have repeatedly pushed for substantial developments in sanctions enforcement, the European Commission and the Member States have generally resisted any serious change. In particular, the Member States have been keen to keep sanctions enforcement wholly within their remit. The limitations in AMLA’s powers therefore reflect the opposition of the Commission and the Member States.

The Member States are currently debating as to where AMLA’s seat should be located – nine Member States have submitted bids, with a final decision to be reached on 22 February 2024.

Although AMLA will start its operations only when all political considerations have been settled, financial services providers need to be aware of and plan accordingly for the changes in AML and financial sanctions supervision and enforcement waiting in the wings.