The EU’s AML Reform Plan: An Update on Progress

As of July 2023, the European Union’s (EU) proposed new anti-money laundering and countering the financing of terrorism (AML/CFT) framework is continuing to progress through legislative processes. Now under negotiation between the European Commission, Parliament, and Council, and with broad support from all three, the plan looks set to radically change the EU’s approach to fighting financial crime. 

The Current Approach

Over three decades, the EU’s AML/CFT policy has been based on Anti-Money Laundering Directives (AMLDs). These regulations have required transposition into national laws – often taking years – and have only set minimum standards, allowing wide variations between nations to develop. This has created opportunities for criminals and compliance challenges for businesses operating cross-border.

The AML Plan

In response to the system’s vulnerabilities and following a series of banking scandals, the Commission put forward a set of AML/CFT reform proposals in July 2021. The package comprises four pieces of legislation:

• A regulation to establish an AML Authority (AMLA), with oversight of national AML regulators and systemically significant financial institutions. 
• A new  6AMLD on national regulatory and law enforcement structures. (Not to be confused with directive 2018/1673 on AML/CFT offenses, widely known  as the ‘original’ 6AMLD.) 
• A new AML Regulation (AMLR) to provide a single rulebook for the obliged private sector.
• An updated Transfer of Funds (TFR) regulation to bring crypto-asset service providers (CASPs) within the regulatory framework and require them to collect and share originator and beneficiary information (the ‘Travel Rule’). 

Each of these proposals is explored more deeply in our Guide to the European Union’s New AML/CFT framework). 

Recent Developments

Of the four plan elements, only one has been fully agreed upon – the TFR – which the Parliament and Council endorsed in April and May 2023, respectively. The TFR will come into effect in January 2025, roughly in parallel with the regulation on Markets in Crypto Assets (MiCA), which brings a broad spectrum of CASPs into EU financial regulation. 

On the other three parts of the package, discussions continue. In June and December 2022, the Council agreed to a position on the proposals, and in April 2023, Parliament put forward its suggested amendments. This has led to an informal discussion or ‘trilogue’ between the Commission, Council, and Parliament to find grounds for agreement.  

Although the Council and the Parliament have supported the package overall, they have suggested strengthening its requirements. The Council has asked for a more powerful AMLA than originally envisioned, enjoying a range of direct enforcement powers and supervision of certain classes of riskier financial institutions, such as CASPs. The Council has also asked for more public transparency for national Beneficial Ownership (BO) registries. But the Parliament has made even tougher and more wide-ranging suggestions, including: 

• A stronger AMLA: Following the expansion of EU sanctions against Russia since 2022, the Parliament has asked that AMLA contribute to implementing financial sanctions, including asset freezes, seizures, and confiscations. The Parliament has also suggested that AMLA act as a peer reviewer of BO registries, an adjudicator between national regulators, and a facilitator of FIU cooperation. 
• Greater BO transparency: The Parliament wants to ensure that BO information for companies incorporated outside of the EU is included in registries and that bank account, crypto-asset wallets, and safety deposit box registers are accessible to AMLA and FIUs through a centralized platform. The Parliament has also asked for the development of registers for real estate and high-value assets such as yachts and motor vehicles (worth over 200 000 euros). 
• Lower BO thresholds: The Parliament has proposed that the BO threshold be lowered to 15 percent, plus either one share or voting rights, or a lower threshold of 5 percent plus one share, for high-risk industries, as defined by the Commission. 
• Enlarging scope: The Parliament has proposed that wealth managers, high-level football clubs, and football agents become obliged entities. 
• Lower due diligence thresholds: The Parliament has proposed that customer due diligence obligations begin at a lower threshold (5,000 rather than 10,000 euros) for vendors of high-value assets such as art. The Parliament has further suggested that payments for goods and services without due diligence only be accepted up to 7,000 euros in cash and up to 1,000 euros in crypto-assets.   

Ongoing Discussions

Negotiations occurred in May and June, with further sessions envisioned for the early autumn. Good progress has reportedly been made on the AMLR and 6AMLD, but disagreements over AMLA are believed to be slowing the pace. As a result, it means that a further final vote on the package by both the Parliament and Council might not occur until the final quarter of 2023 or even early 2024. 

If this is the case, it will lead to a significant slowdown in the creation of AMLA, which the Commission had originally hoped would be in embryonic form by early 2023. As things stand, its initial activities seem unlikely to begin before 2024, with full resourcing by the end of 2025 and supervisory duties beginning in 2026. The new single rulebook and 6AMLD should be in place around 18 months and two to three years respectively after their agreement. 

Key Takeaways

For newly obliged CASPs, urgent action is needed to ensure that they have appropriate AML/CFT controls in place to meet the requirements of TFR and MiCA. For those that are already obliged to follow AML/CFT rules, there is slightly less immediate pressure to take action. However, all businesses operating in the EU need to pay close attention to developments, as the new supervisory arrangements and single rulebook – whatever the precise form they take – are likely to lead to wider and tougher AML/CFT requirements. Businesses need to be ready to respond quickly to ensure they meet the increasing demands of regulators, avoid penalties, and keep compliance costs down.