EBA Highlights Concerns Over Inconsistencies in AML Penalties and Oversight

The European Banking Authority (EBA) has raised concerns about the lack of transparency in how anti-money laundering (AML) watchdogs calculate financial penalties for banks. This warning came alongside findings from the EBA’s fourth and final round of reviews of national competent authorities’ (NCAs’) approaches to mitigating money laundering and terrorist financing (ML/TF) risks in the banking sector.

While the EBA acknowledged significant progress in the oversight methods of NCAs, it highlighted ongoing challenges with consistency and strategic application of regulatory measures.

“Since the first round of reviews in 2018, the review team has seen significant developments in the NCAs’ approaches to supervision,” the EBA noted in its findings, which were published on Friday.

Despite these advancements, issues persist regarding the effective use of enforcement powers, such as imposing fines. The EBA observed that nearly all NCAs involved in the review possessed enforcement powers but did not always apply them efficiently.

“Almost all NCAs in this round had enforcement powers; however, not all of them used these powers effectively,” the report stated. “While most NCAs had taken enforcement actions, it was not always clear on what basis these NCAs had selected the supervisory or administrative measures applied and how they had calculated the value of the fine.”

The lack of documented procedures was another significant concern flagged by the EBA, as it leaves NCAs vulnerable to legal challenges from financial institutions. “No documented procedures existed in these cases, therefore often leaving the NCAs open to legal challenges by banks,” the report added.

This review marks the fourth study published by the EBA since 2018, as part of its ongoing evaluation of how NCAs across the EU implement AML standards in the financial sector. The EBA noted improvements in the alignment of NCAs with international AML standards, which it described as a positive development.

However, the EBA identified other areas requiring attention, particularly the lack of a “strategic” approach among some AML regulators. It pointed out that many watchdogs struggle to strike a balance between on-site inspections of regulated financial institutions and “off-site supervisory activities.”

The EBA plans to conduct a final review in 2025 to assess the progress of NCAs and will release a comprehensive report on their performance. This evaluation will serve as part of the transition process to the Anti-Money Laundering Authority (AMLA), which is set to assume responsibility for AML oversight across the EU, replacing the EBA in this role.

By fLEXI tEAM