The Trilogue discussions on the draft AML Regulation (“AMLR”) have started on 11 May between the European Commission, the Council and the European Parliament (EP), the latter having voted its amendments of compromise on 28 March while the Council adopted its own back in December 2022.
Although the aim of the AMLR should consist in setting-up a single rulebook, in a way, polishing the various cross border rules financial stakeholders have to abide to, the outcome might be quite different. Indeed, some draft provisions may have a substantial impact on the way professionals will have to conduct their AML/CFT obligations, with two main axis to be considered at this stage: on the one hand, the draft provisions whereby the EP and the Council seem to have already reached common stances (the draft provisions looking similar on both sides), on the other hand, some peculiar provisions solely stemming from the EP.
As for the former, it seems rather unlikely that the Council and the EP alter their positions in this regard, nonetheless potentially having adverse consequences or clearly opening a path to an increased burden of AML/CFT obligations for the financial actors. For instance, both the EP and the Council foresee to introduce a rule whereby obliged entities (e.g., banks) would have to collect the information of beneficial owners (BO) from companies established outside of the EU within an EU BOs’ register.
Given the current struggle for professionals to collect such information regarding foreign trusts, one can only imagine how this obligation may turn out in the presence of a foreign entity not having a registered office in the EU. Additionally, although the AMLR shall set-up uniform standards, one specific provision should permit to Member States to impose enhanced due diligence measures (EDD) to professionals, in case of high risks spotted according to their national risk assessment, leaving the door open to gold plating. Absent any mechanism to allow for such EDD measures to apply uniformly across the EU as the case may be, should the risks be also substantive or relevant to other Member States, a jigsaw of various EDD measures may pop-up all around the Member States, imperiling the forthcoming single AML/CFT rule book.
Finally, without even mentioning the inconsistencies that lie in the interactions of certain draft AML provisions with personal data protection principles (such as the retention of financial transactions’ data for decades hypothetically), the onboarding of customers will most certainly be a bumpy ride, not easing the procedures and processes as the AMLR seems to go beyond the current prescribed rules to be found in many Member States in terms of KYC requirements.
As for the initiatives of the European Parliament, one of the main concerns lies here in a new proposal to lower the threshold of the BO to 15% plus one share. This would, among others, not match the core definition of “ultimately owning or controlling” a corporate entity, hence departing from the FATF international standards. As the European Banking Federation would say, “this would overwhelm obliged entities with a white noise, which holds little meaning in determining those individuals who actually exercise control over customer entities”.
Without the intention to paint a grim picture, the idea of the EP to introduce a new definition of “High-Net-Worth Customers”, imposing mandatory enhanced due diligence measures as soon as the customer’s business relationship exceeds EUR 1,000,000 would encounter the risk- based approach, core pillar of the AML/CFT Directive.
Applying this concept to the private banking sector would simply amount to considering that each and every client would be “high-risk”, whereas private banking is already considered as “a factor of high risk” within one Annex of the AML Directive, hence demanding for a due consideration and mitigation of the risks at stake in a banking relationship. Let’s hope that the wind will blow in the wise direction.
Since the release of the draft European package on 21 July 2021, the ABBL strongly advocated at national and European level with its partners to defend the positions shared by its members so that the AMLR ends up in a successful harmonised story, as announced by the EC at its inception, rather than adding more complexity in an already dense AML/CFT legal framework.