Regulatory change and development is frequent in the financial services sector and this has particularly been the case for the anti-money laundering (AML) and combating terrorism financing (CFT) legal framework. The framework has received much attention from both EU and national legislators, as well as international regulatory bodies, resulting in successive AML/CFT regulatory reforms. In addition, while the Fifth Money Laundering Directive ((EU 2018/843) (MLDV) came into force in January 2018 and was implemented in France in February 2020 by way of Ordinance, the legal framework, and specifically the supervisory mechanism under it, is still considered to be insufficient and, as a result, additional EU legislative developments are expected.

EU reform so far

Both EU and French legislators have taken steps to develop cooperation between the different EU and national supervisory and enforcement authorities involved: by strengthening cooperation between national authorities dealing with matters related to AML/CFT and by including prudential supervisory authorities within the cooperation mechanism. As indicated in the Fifth Capital Requirements Directive (EU) 2019/878 (CRD V), which EU member states are required to transpose by December 2020, such cooperation with prudential supervisory authorities is necessary insofar as prudential supervision, money laundering and the financing of terrorism are all inter-linked. Indeed, failure to address money laundering could have a detrimental effect on the financial soundness of individual institutions, as well as implications for financial stability.[1]

Taking into account the link between prudential supervision and AML/CFT, CRD V, inter alia: (i) integrates an AML/CFT criterion into the regulatory fit and proper assessment of credit institutions’ management bodies [2]; and (ii) strengthens the mechanisms for information exchange and reporting, by amendment to CRDIV (Articles 57 and 97). The revised version of Article 97 is of particular interest as it provides for a cooperation mechanism at an EU level between the EU supervisory authorities (ESAs) and the national supervisory authorities dealing with AML/CFT matters at a national level. In particular, CRD V provides that the European Banking Authority (EBA) shall specify the cooperation and information exchange required between authorities, particularly in the context of identifying serious breaches of AML rules.

In addition, the EBA’s powers have been substantially extended by the reform of the ESAs’ powers more generally under Regulations that came into force at the end of 2019 and have applied partly since January 2020 with remaining provisions applying from January 2022. These powers give the EBA a leading, coordinating and monitoring role at the EU level, designed to enhance the prevention of the EU financial system being used for money laundering and terrorist financing. Interestingly, to justify the EBA’s role, one of the Regulation’s reforming the ESAs powers (Regulation (EU) 2019/2175) points out that it is in the banking sector that money laundering and terrorist financing risks are most likely to have a systemic impact and that the EBA has already gained experience in protecting the banking sector from such abuses. [3]

French regulatory developments

At a French domestic level, the transposition of MLDV has also made some changes to improve cooperation. The Ordinance implementing the Directive provides for an official framework for the coordination between French national regulators and EU supervisory authorities, in particular between national AML/CFT supervisory authorities and the European Central Bank (ECB). This provision was achieved following agreement between the ECB and the French supervisory authority for the banking and insurance sectors (Autorité de Contrôle Prudentiel et de Résolution, or ACPR). In addition, the Ordinance has made provision for the regulation of the security of information exchanges between the French and EU authorities.

Further reform needed

However, despite these recent developments and the upcoming transposition of CRD V into EU member state national law, including in France, some cases, such as the Danske Bank affair, reveal significant shortcomings in relation to credit institutions’ risk management and their supervision. The European Council [4] and the European Commission [5] have, therefore, started to work towards further reform to strengthen the EU AML/CFT framework. Among the six pillars proposed by the Commission in its May 2020 Action Plan [6], one focuses on the building of an effective EU AML/CFT supervisory system and outlines several options to achieve this, including by:

• direct AML/CFT supervision of all or only certain entities;
• the creation of a competent authority for the financial and other sectors, or an               authority only for the financial sector; and
• the creation of a new EU supervisory authority or giving the EBA competence in              this matter.

French regulation currently 

At a French national level, AML/CFT supervisory responsibilities are currently fragmented between several regulatory authorities: the supervision of the financial sector is shared between the French financial markets authority (the Autorité des Marchés Financiers, or AMF) and the ACPR, depending on the status of the regulated entity (which means that these entities tend to have one regulator supervising both prudential and AML requirements). Outside the financial sector, other bodies are responsible for the supervision and enforcement of AML/CFT matters, such as Tracfin. The Ordinance transposing MLDV has further complicated matters by designating additional bodies also responsible for AML/CFT supervision. These include the Supervisory Committee which oversees the CARPA (the body responsible for managing funds held in escrow by French lawyers on behalf of their clients and managing legal aid) and the French National Council of Commercial Court Registrars (who is in charge of keeping the national beneficial owner register).

Given these complications at the French national level, it is hoped that both the changes arising out of the transposition of CRD V and the changes announced at an EU level by the Commission’s Action Plan will lead to the reorganisation and, hopefully clarification, of the existing French AML/CFT arrangements.

[1] Recital 20 to CRDV.
[2] By amendment to Article 91 of CRDIV.
[3] Recital 14 to Regulation (EU) 2019/2175.
[4] Council conclusions on strategic priorities on anti-money laundering and countering the financing of terrorism, 5 December 2019.
[5] Money Laundering Council sets strategic priotitires for further reforms, press release, 5 December 2019.
[6] Communication from the European Commission on an Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing, adopted on 7 May 2020.