Communications to Intermediaries Supervised by the Bank of Italy on the Importance of Money Laundering and Terrorist Financing Risks in Prudential Supervision

Communication to Intermediaries Supervised by the Bank of Italy on the Importance of Money Laundering and Terrorist Financing Risks in Prudential Supervision – 27 February 2020

From recent cases of money laundering and terrorist financing involving certain banks, the need has emerged to strengthen the European supervisory framework to ensure, among other things, closer cooperation between prudential supervision and anti-money laundering supervision, as well as greater uniformity in the control practices and methodologies adopted by different national anti-money laundering authorities.

The European framework regarding the fight against money laundering and terrorist financing risks (hereinafter, AML/CFT) has therefore been revised. At the regulatory level, amendments to the AML and CRD Directives have introduced obligations for cooperation and information exchange both among national anti-money laundering authorities and between these and prudential authorities.

Furthermore, in December 2018, the Council of the European Union adopted an Anti-Money Laundering Action Plan that sets out a series of objectives, with expected results and deadlines, to improve the effectiveness of control actions regarding money laundering and terrorist financing risks (1). Among the actions provided for, the Plan: a) signals the need to increase information exchange and collaboration between AML/CFT Authorities and Prudential Supervisory Authorities, especially in cross-border cases; b) asks Prudential Supervisory Authorities to remind the market that there is close cooperation and information exchange between anti-money laundering and prudential supervisors, and that money laundering and terrorist financing risks are taken into account in prudential supervision actions. To ensure a unified approach in the communications that European Prudential Supervisory Authorities are called upon to send to the financial industry, in July 2019, the EBA issued an Opinion (2).

In Italy, the exchange of information and cooperation between prudential supervision and AML/CFT supervision are facilitated by the Bank of Italy performing both functions. In line with what is provided for in the EBA Opinion, it is already part of the practices adopted by the Bank of Italy, in the exercise of its prudential supervision tasks, to take into account information regarding the possible involvement of supervised intermediaries in money laundering or terrorist financing coming from the structures of the Bank of Italy itself that carry out AML/CFT controls, as well as from other competent authorities in the matter (for example, the Financial Intelligence Unit for Italy - UIF). In particular, information regarding money laundering or terrorist financing risks is taken into account in prudential supervision processes related to intermediaries supervised by the Bank of Italy, such as, among others:

(1) The Action Plan adopted by the Council of the European Union can be consulted at the following address: https://www.consilium.europa.eu/media/37283/st15164-en18.pdf. (2) The Opinion of the European Banking Authority on communications to supervised entities regarding money laundering and terrorist financing risks in prudential supervision (EBA-op-2019-08) can be consulted at the following address: https://eba.europa.eu/sites/default/documents/files/documents/10180/2622242/a8270e12-b0c2-4194-a70f-1f1ece5c71a3/Opinion%20on%20Communication%20of%20ML%20TF%20risks%20to%20supervised%20entities.pdf?retry=1.

• procedures for the authorization and revocation of banking and financial activities and for the acquisition of significant shareholdings in the capital of banking and financial intermediaries;
• assessments regarding the suitability of individuals to hold positions in supervised entities;
• the prudential review and assessment process (SREP);
• the adoption of intervention or stringent measures.

Furthermore, in January 2019, the Bank of Italy, in its capacity as an AML/CFT Authority, signed and made operational an agreement with the European Central Bank and other European Prudential Authorities within the Single Supervisory Mechanism; in conformity with what is provided for by the fifth anti-money laundering directive (3), the agreement regulates information exchanges with the ECB and NCAs regarding anti-money laundering and the fight against terrorist financing.

Finally, it is recalled that to successfully combat money laundering and terrorist financing in the financial sector, interventions by national and European regulators and the actions of supervisory Authorities are not sufficient on their own, but the role played by intermediaries remains fundamental.

It is their responsibility to ensure, among other things, that members of administrative and control bodies and senior management have, at all times, suitable qualifications to effectively perform their duties. Intermediaries are also required to adopt an organizational and control system adequate to the level of risk to which they are concretely exposed: effective organizational and control structures constitute an essential condition for preventing and mitigating corporate risk factors, including that of money laundering and terrorist financing.

(3) EU Directive 2018/843 of 30 May 2018.