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Association for Financial Markets in Europe ('AFME')

The Association for Financial Markets in Europe (AFME) welcomes the opportunity to comment on the European Banking Authority’s (EBA) Regulatory Technical Standards (RTS) under Article 9a (1) and (3) of Regulation (EU) No 1093/2010 setting up an AML/CFT central database and specifying the materiality of weaknesses, the type of information collected, the practical implementation of the information collection and the analysis and dissemination of the information contained therein.

AFME has put in place internal arrangements to manage our work in compliance with the conditions set by the EBA on Adam Farkas’ appointment as CEO. As part of these, Adam Farkas has not been involved in the preparation of this consultation response.

We welcome the EBA consulting on the AML/CFT central database, particularly in the context of its newly formed AML/CFT Unit. We believe that it is important that the EBA clearly defines how it intends to identify material weaknesses that will be stored in the central AML/CFT database and transmit the relevant information to other competent authorities.

• This is an overarching comment on the RTS.

As mentioned in the last EBA’s opinion on the risks of ML and TF affecting the European Union’s financial sector, the provision of financial products and services through Fintech firms that do not fall within the scope of the AML/CFT legislation is increasingly raising concerns among competent authorities .

Since AML/CFT is a cross-sectoral issue, we believe that the AML/CFT central database should eventually concern non-financial institutions as well. This will help to effectively tackle the problem of financial crime.
• We welcome the EBA establishing a central AML/CFT database.

However, we would like to stress that it is very important that all the European Supervisors issue clear, granular and consistent guidance/methodology on what constitutes ‘material weaknesses’ beforehand. The guidance should also include clear thresholds on when new information concerning a specific firm is added to the database. Specific examples would also be welcome.

• In addition, we t believe that some clear issues may be identified by regulators when assessing organisations’ systems and controls. However, we are concerned that it is often challenging to assess what ‘good looks like’ and how to properly frame what ‘weakness’ means.

We note that the FATF is committed to (a) assessing the effectiveness, not just the design, of national AML/CTF regimes and (b) study the unintended consequences of AML (e.g. de-risking, financial exclusion).

We encourage the EBA to consider all these factors when assessing ‘materiality of weakness’ as delineated under Article 5 of the Guidance.
• We note that Article 8 talks about the type of information transmitted in relation to measures taken in response to material weakness.

"The type of information to be provided pursuant to point (a) of paragraph 1 of Article 9a of regulation (EU) No 1093/2010 in relation to a measure taken in response to a material weakness shall comprise the following: (…)
(h) all information relevant to the remediation of the material weakness concerned by the measure, including any action planned or taken for that remediation, any additional information necessary and the relevant timeline (…)".

We understand that this sub-paragraph relates to measures imposed by the competent authorities on financial institutions (FI), including the action planned or taken by the competent authority to address any identified weaknesses.

We wish to stress that it is crucial that FIs should be made aware of any information that concerns them and relates to AML/CFT weaknesses that have been identified by the competent authorities or shared with the other authorities through the new database as soon as possible.

As a result, FIs will be able to adequately and quickly address any weaknesses. Moreover, different group entities will be able to anticipate potential questions related to such weaknesses and be ready to address any concerns and exchange information as required by the competent authorities.

Similarly, FIs should be able to manage at group level any requests of additional information relating to information stored in the AML/CFT database, should any additional information be needed by the national competent authorities. This will help to ensure that the information provided is consistent within the Group.

In summary, we urge the EBA to inform the FIs know as soon as possible, both at entity level and at group level, when:
1) any material AML/CFT weaknesses that concern them are identified, and
2) this information is added to the central European database.

When this happens, it is also important that FIs are provided with sufficient context and explanatory notes on the actions taken.

• Should you wish to discuss with us any of the comments enclosed in our submission, please do not hesitate to get in touch. We would be delighted to work with you on any future updates to the AML/CFT central database. You can find our contact details below.
Association for Financial Markets in Europe ('AFME')
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