After several other reports showing substantial weakness within the European anti-money laundering effectiveness, the ESAs have jointly reported a significant risk of the Union’s financial system to be used for terrorist financing and/or money laundering.
The report points out at the inconsistent and significantly diverse implementation of EU directives (including AML and fit-and-proper requirements for financial institutions.
It is noted that technology can significantly help firms to detect suspicious activities, but may increase other types of risk when performing outsourcing without full understanding of the methods applied.
Brexit was noted as a risk for the activities being relocated to countries without technical and human capital resources to effectively monitor and supervise the newly welcomed firms.
One more issue potentially linked to Brexist will be the creation of “shell” companies controlled from the UK which may weaken local controls and make harder supervision at Member State level.
New technologies bring substantial risk as per the quality of the goods and services acquired and therefore weaken the Financial Institution robustness by means of using unregulated products making CDD poorly executed and increasing risk of identity theft.
Virtual currencies where also highlighted as a Union treat and noted as needing strong regulatory frameworks to protect the market against the inherited risk known to this asset type.
Supervisory practices and weak internal controls were also noted as a serious treat to the stability and sustainability of the system.
As per terrorist financing, the report highlights the importance of CDD including KYC and KYT in order to prevent the different financial actors from being abused for terrorist financing purposes.
