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    EBA to Enhance Framework Addressing Dividend Arbitrage Trading Schemes

    May 12, 2020

    EBA published a report on the approaches of competent authorities to tackling market integrity risks associated with dividend arbitrage trading schemes. The report contains the results of an inquiry into the actions of prudential and anti-money laundering (AML) and countering the financing of terrorism (CFT) supervisors in dealing with the dividend arbitrage trading schemes. The report sets out the EBA expectations of credit institutions and national authorities under the current regulatory framework. EBA also decided on a ten-point action plan for 2020-21 to enhance the future framework of prudential and anti-money laundering requirements covering such schemes.

    The report sets out that EBA expectations under the current regulatory framework include

    • Requirement to take a comprehensive view of the risks highlighted by dividend arbitrage trading cases, looking at the adequacy of financial institutions’ internal controls and internal governance arrangements, their systems, and controls of AML/CFT
    • The exchange of information between prudential and AML authorities when performing reviews of institutions’ internal controls and governance
    • AML authorities reaching out to local tax authorities
    • Prudential and AML authorities pursuing targeted inspections
    • Prudential supervisory colleges discussing such schemes

    To enhance the future regulatory framework, the EBA published a ten-point action plan, which seizes on the opportunities afforded by recent legislative changes in the EU Capital Requirements Directive (CRD5) and the AML/CFT mandate in the EBA Regulation,and which will be implemented in 2020 and 2021. EBA will strengthen its prudential Guidelines on Internal Governance, its Guidelines on the Assessment of the Suitability of Members of the Management Body and Key Function Holders, and its Guidelines on Supervisory Review and Evaluation Process (SREP); it will also monitor how prudential colleges will follow up on the related guidance.

    With regard to AML requirements, EBA will amend its guidelines on money laundering (ML) and terrorist financing (TF) risk factors, its Guidelines on Risk-Based AML/CFT Supervision, and its biennial Opinion on ML/TF Risks. EBA will also allocate explicit time to such schemes during its staff-led AML/CFT implementation reviews of national authorities and monitor AML/CFT colleges for financial institutions that are exposed to significant ML/TF risks associated with tax crimes. EBA will then carry out a second formal inquiry into the actions taken by financial institutions and national authorities to supervise compliance with the aforementioned amended requirements.


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    Keywords: Europe, EU, Banking, AML/CFT, CRD 5, SREP, Governance, Dividend Arbitrage Trading Schemes, EBA

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