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December 06, 2017

ESAs published a final report on joint draft regulatory technical standards specifying the way credit and financial institutions should manage money laundering and terrorist financing (ML/TF) risks. These standards apply at the group level, where they have branches or majority-owned subsidiaries based in third countries whose laws do not permit the application of group-wide policies and procedures on anti-money laundering and countering the financing of terrorism (AML/CFT).‎ These regulatory standards shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. These shall apply from three months after the entry into force.

The regulatory technical standards have been drafted in accordance with Article 45(6) of Directive (EU) 2015/849. Credit and financial institutions have to put in place and maintain AML/CFT policies and procedures to assess and manage effectively the ML/TF risks to which they are exposed. Where they are part of a group, these AML/CFT policies and procedures have to be applied at group-level. This can be challenging where branches or majority-owned subsidiaries are located in a third country, outside of the European Economic Area (EEA), whose law may not permit the application of some or all parts of a group's AML/CFT policies and procedures. In such cases, credit and financial institutions must take effective steps to manage the resultant ML/TF risk.

The draft regulatory technical standards require credit and financial institutions to determine the extent of the measures on a risk-sensitive basis and be able to demonstrate to their competent authorities that the steps taken are commensurate with the ML/TF risk. In exceptional cases where, after taking all possible steps, ML/TF risk cannot be mitigated effectively, credit and financial institutions will have to require their branch or majority-owned subsidiary to terminate the business relationship, or not to carry out the occasional transaction, decide to close down some or all of their operations in the third country. ESAs publicly consulted on these draft standards between June and July 2017. Minor changes were brought to the draft as a result of comments received. ESAs will submit these draft regulatory technical standards to EC for approval. The regulatory standards are part of the ESAs' wider work on fostering a common approach to AML/CFT and will contribute to creating a level playing field across the financial sector in EU. 

 

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Keywords: Europe, Banking, Securities, AML/CFT, ML/TF_Risk, RTS, ESA

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