Addition of non-bank lenders to the European AML/CFT regime | EBA advice on non-bank lending

On 4 May the European Banking Authority (EBA) published its advice regarding non-bank lending. In the advice the EBA identifies risks related to provisions of credit by non-bank lenders and puts forward some proposals to address them. In the press release EBA highlights the importance of:

  • Ensuring that the consumer protection framework remains fit-for purpose in view of new players entering the market. For that, the EBA is proposing i) to enhance the disclosure requirements and ensure that they are fair, effective and well-suited for new forms of lending; ii) to strengthen the requirements for creditworthiness assessment, to ensure it is conducted in the interest of consumers.
  • Strengthening the provisions in terms of authorisation and admission to activities and clarifying the identification of the prudential perimeter and the supervisory responsibilities in cross-border provision of services, to allow for a more effective oversight.
  • Covering all non-bank lenders in a more comprehensive way in the EU-wide AML/CTF framework, to achieve greater harmonisation and capture such entities as ‘obliged entities’.
  • Enhancing the monitoring and reporting frameworks to avoid that any sudden increase of macroprudential risks remain unaddressed and considering the introduction of activity-based macro-prudential measures to cover all credit providers.

An important change will be that non-bank lenders – even if they are not subject to licensing under financial regulation – will be required to take AML/CFT measures. In the advice, EBA formulates it in paragraph 8.3 as follows:

As explored in Section 7.3, due to the inherent ML/TF vulnerabilities usually associated with lending activities, and the higher ML/TF risk where lending is provided by non-financial institutions not subject to AML/CFT obligations, it is proposed to the Commission to consider subjecting all categories of non-bank lending to the EU-wide AML/CFT rules (similar to the proposal under Section 8.1, from a prudential perspective) to guard against uneven approaches, regulatory arbitrage and associated gaps in the EU’s AML/CFT defences. The EBA notes that this approach is in line with Financial Action Task Force (FATF) Recommendation 26 143 that states that other financial institutions – where non-banking lending would fit – ‘should be licensed or registered and adequately regulated, and subject to supervision or monitoring for AML/CFT purposes, having regard to the risk of money laundering or terrorist financing in that sector’. This Recommendation in addition stresses that ‘at a minimum, where financial institutions provide a service of money or value transfer, or of money or currency changing, they should be licensed or registered, and subject to effective systems for monitoring and ensuring compliance with national AML/CFT requirements’.

EBA mentions that the draft AMLR already is broadening the scope of AML/CFT duties:

Article 3 of the 2021 Commission legislative proposal for the AMLR goes some way towards addressing this recommendation (by extending the list of AML/CFT ‘obliged entities’ to creditors for mortgage and consumer credits, as well as mortgage and consumer credit intermediaries that are not credit institutions or financial institutions, and crowdfunding service providers which fall outside the scope of Regulation (EU) 2020/1503, as result of their exposure to ML/TF risks). However, with respect to other non-banking lending activities – as explained in Section 6.8 – those might fall within Annex I to the CRD, but this Annex does not include the full list of obliged entities carrying out non-bank lending activities. In order to ensure consistency of approaches across Member States – and to address the concerns identified in this Report – consideration should be given to capturing all these entities directly in Article 2 of the proposed AMLR, instead of referencing Annex I to the CRD, which currently is considered unclear and still outdated

It shows that more and more companies and activities will be subject to obligations under the European AML/CFT regime.

 

More information:

Over Ellen Timmer, advocaat ondernemingsrecht @Pellicaan

Verbonden aan Pellicaan Advocaten, http://www.pellicaan.nl/, kantoor Rotterdam, telefoon 088-6272287, fax 088-6272280, e-mail ellen.timmer@pellicaan.nl ||| Weblogs: algemeen: https://ellentimmer.com/ || modernisering ondernemingsrecht: http://flexbv.wordpress.com/ ||| Motto: goede bedoelingen rechtvaardigen geen slechte regels
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