EBA Report Uncovers Risks of Money Laundering & Terrorist Financing Associated With Payment Institutions

The European Banking Authority (EBA) published findings on money laundering and terrorism financing risks in EU payment institutions, highlighting non-compliance with the regulations as a primary culprit behind the increased risks. 

The European Banking Authority (EBA) conducted an assessment in 2022 on risks associated with money laundering (ML) and terrorism financing (TF) in the EU payment institutions (PIs) sector. On 16th June 2023, EBA published its findings on the issues highlighting ML/TF risks in said institutions. Among various discoveries, the report sheds light on the poor assessment and management of ML/TF risks by the payment institutions and their supervisors. 

The EBA solidifies its stance on the assessment by stressing that this report underlines the dual benefits of addressing points discussed in the report. Compliance with the report will not only safeguard the EU single market from money laundering but will also improve payment accounts access by PIs. 

Under Article 9a(5) of Regulation (EU) 1095/2010, the European Banking Authority is mandated to conduct risk assessments on money laundering and terrorism financing risks that pose a significant threat to the EU’s economy and its financial sector. On the same note, Directive (EU) 2015/849 (‘AMLD’) subjects payment institutions to undergo risk assessments for the aforementioned risks.  

The EBA’s comprehensive risk assessment relied on inputs from several sources, including:

• Peer Review on PI Authorisation under Revised PSD2.
• Questionnaire Responses and Bilateral Interviews from EU supervisors.
• Data Extracted from EuReCA Database

Most importantly, the purpose of the 2022 assessment was to shed light on the following issues. Firstly, the authority wanted to get a clear picture of the ML/TF risks that plague PIs. Determining the scale and nature of the said risks was conducted under the same objective. The second goal was to understand the extent of the efficacy of countermeasures in place. 

Following the assessment, the report highlighted that payment institutions allow cross-border transactions paired with anonymity, increasing the risk of inherent ML/TF issues. Such risks are amplified by the emergence of virtual IBANs and third-party merchant acquiring practices. The report notes that these risks result from inconsistent authorisation practices prevalent across the EU, paired with incompetent AML/CFT staff in the payment institutes. It also puts into perspective the inefficiency and weaknesses of PIs in maintaining system controls for ML/TF risk identification and mitigation. 

The report concluded that competent supervisors and authorities are not fulfilling their legal obligations with respect to the monitoring of ML/TF risks across the payment institutes.

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