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European Regulators Issue AML/CTF Guidance

by Jason Gorringe, Lowtax.net, London
11 December, 2017

The European Union recently issued anti-money laundering and countering the financing of terrorism (AML/CFT) guidance for credit and financial institutions.

The guidance, in the form of draft regulatory technical standards, was jointly issued by the European Banking Authority, the European Insurance and Occupational Pensions Authority, and the European Securities and Markets Authority.

The guidance deals with the management of risk at group level where credit and financial institutions have branches or majority-owned subsidiaries based in third countries whose laws do not permit the application of group-wide AML/CFT policies and procedures.

In such cases, credit and financial institutions are required to take effective steps to manage the resultant risk, including obtaining consent from customers to overcome restrictions on the ability to share and process customer data, and carrying out enhanced reviews to ensure branches and majority-owned subsidiaries are able to adequately assess and manage risk.

In exceptional cases where, after taking all possible steps, money laundering and terrorist financing 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 decline to carry out the occasional transaction, or close down some or all of their operations in the third country.

The guidance is part of the EU's wider work fostering a common approach to AML/CFT, and is intended to contribute to creating a level playing field across the EU's financial sector.

The new guidance will be of particular relevance to offshore financial centers and Caribbean territories currently seeking to respond and adapt to the drop in correspondent banking relationships as a result of "derisking" – that is, international banks terminating ties with territories seen as being a higher risk, given ever increasing international regulatory standards and penalties. Caribbean territories have called on international organizations to help them in this respect, saying the issue had reached crisis level for their economies last year.


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