ECB Supervisory Board Member Warns Europe's New AML Authority Needs Adequate Resources to Succeed

Elizabeth McCaul, a member of the European Central Bank's (ECB) Supervisory Board, has warned that Europe's new Anti-Money Laundering Authority (AMLA) could face challenges and become ineffective if it is not adequately resourced.

Speaking at the 'AML Europe 2023' conference in Brussels, McCaul emphasized the importance of providing AMLA with sufficient finances and skilled personnel to carry out its tasks effectively.

McCaul highlighted the need for AMLA to have a robust budget to fulfill its responsibilities, stating, "It is vital that AMLA have sufficient resources, notably budget, to fulfill its tasks." She further emphasized that insufficient resources, a shortage of staff, or a lack of skilled personnel would undermine the authority's effectiveness and potentially diminish its credibility. McCaul bluntly stated, "If it does not have enough staff, or it does not have enough skilled staff, it will become a joke."

The European Central Bank is eager to see the establishment of AMLA as soon as possible, and McCaul urged EU co-legislators to swiftly reach a political agreement on creating an effective European Anti-Money Laundering Authority.

In terms of supervision, McCaul underscored the importance of both off-site and on-site inspections. While off-site supervision involves joint supervisory teams working alongside national supervisors, on-site inspections provide a more intrusive and comprehensive approach to supervision. McCaul emphasized the need for AMLA to have an adequate number of staff to carry out on-site inspections effectively, as they are crucial for gaining a comprehensive understanding of the activities of supervised entities.

AMLA should be an independent authority with the responsibility of directly supervising a significant number of entities. McCaul stressed the importance of including at least one entity, preferably a group, from each EU member state in the pool of entities directly supervised by AMLA. She welcomed the proposal to increase the number of supervised entities to 40, with the potential for further expansion in the future.

McCaul also highlighted the broader implications of AML/CFT issues within banks, noting that they often indicate underlying weaknesses in overall governance and management. She emphasized that AML/CFT issues are not isolated but are intertwined with a bank's internal controls and governance. Addressing these issues requires effective cooperation between AML/CFT and prudential supervisors to ensure the overall soundness of the banking sector.

To facilitate cooperation between AML/CFT authorities and prudential authorities, AMLA would establish a data hub to encourage the exchange of information. McCaul emphasized the importance of a memorandum of understanding between the ECB and AMLA to facilitate information sharing. She stated that the ECB would greatly benefit from the data hub, which would enhance efficiency and effectiveness in cooperation between authorities. McCaul also highlighted the potential for effective public-private partnerships in information sharing as part of the AML ecosystem.

Regarding the use of artificial intelligence (AI) in AML/CFT efforts, McCaul acknowledged its potential in analyzing vast amounts of financial data, identifying patterns, and uncovering suspicious transactions. However, she cautioned that AI is not a panacea and must be handled with care. McCaul warned about potential biases in AI algorithms and datasets, which could lead to inaccurate or unfair outcomes. She stressed the need for proper governance frameworks, including data and model governance, quality assurance, and controls to ensure transparency and explainability of AI systems. McCaul emphasized that AI should augment human judgment rather than replace it.

The establishment of AMLA and the implementation of a single rulebook aim to enhance harmonization and consistency in AML/CFT supervision throughout Europe. This will contribute to a more integrated internal market and provide prudential supervisors with a clearer understanding of the impact of AML/CFT-related findings on a bank's prudential risk profile.

By fLEXI tEAM