Money laundering risk significant for private banking as 4MLD comes into force – European Commission

Money laundering risk remains significant for private banking and institutional investment, especially through brokers, the European Commission said as the Fourth Money Laundering Directive came into force this week.

“This is due to the overall higher exposure to product and customer risks, pressures of competition in the sector and a limited understanding among supervisors of their operational AML/CFT risks,” it said in a report just published.

Safe custody services are seen as significantly exposed to money laundering risks due to limitations in monitoring capacities for obliged entities, and the existence of non-regulated storage activities, the Commission said in the supranational risk assessment report.
Electronic money or money value transfer services are considered significantly, and even highly significantly, exposed to money laundering and terrorist financing (ML/TF) risks, it said.
For currency exchange offices, applying the anti-money laundering rules to occasional transactions only above 15,000 euros could be problematic since criminals can make smaller transfers over time.

“This is especially problematic in the absence of a common definition of operations which are linked or have an actual element of duration,” the Commission said.

Emerging products such as virtual currencies appear significantly exposed to ML/TF risks, it said.

Vulnerabilities common to all sectors include infiltration by criminals, forged documents, and insufficient information sharing between the public and private sectors, as well as insufficient resources, risk awareness and know-how to implement anti-money laundering and countering the financing of terrorism rules.

New risks emerging from fintech are another vulnerability, it said. The use of online services is expected to increase, boosting demand for online identification and presenting an augmented risk, and the use and reliability of electronic identification is crucial.

The Commission has set up an internal fintech task force identifying options for addressing risks. Work will cover digital currencies, distributed ledger technology and authentication/identification.

In addition, the Commission is to carry out a study, mapping and analysing on-boarding bank practices across the EU.

Published 30-Jun-2017
 Alex Davidson, Regulatory Intelligence

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