EPRS report on the AML Package | inadequate attention to non-financial obliged entities

In July this year the European Parliamentary Research Service published The proposed Anti-Money Laundering Authority, FIU cooperation, powers and exchanges of information, written by Silvia Allegrezza (University of Luxembourg).

Inadequate attention to non-financial obliged entities
The author recognizes that the obliged entities that do not belong to the financial sector (non-financial obliged entities, like auditors and notaries) are in a fundamental different position from obliged entities in the financial sector (financial institutions, ‘FIs’), which makes centralisation of supervision impossible (page 7):

A partial centralisation of supervisory powers limited to the financial sector seems adequate to the current state of harmonisation at the EU level. Conversely, due to the heterogeneity and fragmentation of regulation of the non-financial sector, a centralisation of supervision of non-financial obliged entities would require prior harmonisation efforts;

She however pays no attention at all to the fact that anti-money laundering (AML) legislation is designed for FIs that carry out transactions with / for their clients.

Differences with the financial sector
The position of obliged entities from the non-financial sector is completely different. Some of them do not do any financial transactions with/for their clients and are involved with few transactions, some of them only see transactions after they have happened. The information position of the different members of the non-financial sector is also completely different, for example, because some service providers, due to the nature of their work, have long-term relationships with their clients (e.g. accountants and tax advisers) while others carry out ad hoc assignments (lawyers providing AML services). Within one group there may also be differences, for instance: the tasks of lawyers in Anglo-Saxon legal systems are different from what regulated lawyers do on the European continent.

This element is missing in the report, for instance in paragraph 2.1 where only attention is paid to heterogeneity and fragmentation of regulation and supervision and not to the position of these service providers in transactions.

Without any explanation or justification the author takes the position that the indirect supervision by the new Authority for Countering Money Laundering and Financing of Terrorism (AMLA) will improve the effectiveness of European AML-legislation, for instance on page 15 and 25 of the report, where she claims that the harmonising effect of the actions of AMLA and the European Commission will also benefit compliance of non-financial obliged entities.

Further research is needed
I agree with the remark in footnote 59 that further research absolutely is needed in relation to non-financial entities. Such research should be of a much higher quality and pay attention to the conditions in which the various service providers / professionals work and the characteristics of their work. Now it is being done as if they could be treated the same as large financial institutions.

In my opinion, it is not appropriate for AMLA and the European Commission to interfere with non-financial obliged entities, it will lead to torrents of inadequate guidance based on their experience with FIs; it is to be expected that Europe will authoritarianly steamroll over national supervisors and obliged entities.

Over Ellen Timmer

Weblog: https://ellentimmer.com/ ||| Microblog: https://mastodon.nl/@ellent ||| Motto: goede bedoelingen rechtvaardigen geen slechte regels
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