RiskTech Forum

ESAs publish draft technical standards to strengthen group-wide management of Money Laundering and Terrorist Financing Risks

Posted: 6 December 2017  |  Source: EBA


The Joint Committee of the three European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) published today its draft regulatory technical standards (RTS) specifying how credit and financial institutions should manage money laundering and terrorist financing (ML/TF) risks at group level where they have branches or majority-owned subsidiaries based in third countries whose laws do not permit the application of group-wide policies and procedures on anti-money laundering and countering the financing of terrorism (AML/CFT).‎ These RTS are part of the ESAs' wider work on fostering a common approach to AML/CFT and will contribute to creating a level playing field across the European Union's financial sector.

Credit and financial institutions have to put in place and maintain AML/CFT policies and procedures to assess and manage effectively the ML/TF risks to which they are exposed. Where they are part of a group, these AML/CFT policies and procedures have to be applied at group-level. This can be challenging where branches or majority-owned subsidiaries are located in a third country, outside of the European Economic Area (EEA),   whose law may not permit the application of some or all parts of a group's AML/CFT policies and procedures.

In such cases, credit and financial institutions must take effective steps to manage the resultant ML/TF risk.  These may include:

The draft RTS require credit and financial institutions to determine the extent of these measures on a risk-sensitive basis and be able to demonstrate to their competent authorities that the steps taken are commensurate with the ML/ TF risk.

In exceptional cases where, after taking all possible steps, ML/TF risk cannot be mitigated effectively, credit and financial institutions will have to require their branch or majority-owned subsidiary to terminate the business relationship, or not to carry out the occasional transaction, decide to close down some or all of their operations in the third country.