EuReCA: A new tool for effective cooperation and coordination in AML/CFT matters

June 2022

Money laundering and terrorist financing (ML/TF) continue to be a major concern for the EU’s financial system and the security of its citizens. On 31 January 2022, the European Banking Authority (EBA) launched its central database for Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT), known as the European Reporting system for material CFT/AML weaknesses (EuReCA). 

The aim of EuReCA is to strengthen existing systems in place and be central to coordinating efforts to combat ML/TF in the EU. The EBA sets out that the database shall bring together, in one place, the material weaknesses in financial sector operators identified by the competent authorities and the measures they have taken in response, to inform the EBA’s view of the ML/TF risks affecting the EU’s financial sector. 

A draft Regulatory Technical Standards (RTS), published on 20 December 2021, sets out the intrinsic details and implementing procedures of EuReCA. The RTS inter alia provides on when weaknesses are material, the type of information competent authorities have to report, how information will be collected and how the EBA will analyse and disseminate the information contained in the database.

Purpose of the EuReCA

EuReCA has been earmarked to serve a dual purpose. Firstly, the EBA will use EuReCA to provide information on the ML/TF risk affecting the European financial sector. Where appropriate, it will also share information with competent authorities in order to support them in all stages of the monitoring process, and in particular, if specific risks or trends emerge.

Secondly, EuReCA will serve as an early warning tool that will help competent authorities to act before the ML/TF risk materialises, and further aid in coordinating efforts to prevent and counter ML/TF.

Materiality of weaknesses

With a view to support early intervention before risks materialise, weaknesses are defined as encompassing a breach, a potential breach, and an ineffective or inappropriate application which capture circumstances where the financial sector operator’s AML/CFT requirements or policies do not meet expectations.

EuReCA will contain information only on material weaknesses of individual financial sector operators which make them vulnerable to ML/TF. When a weakness is considered material, this shall trigger a duty by the competent authorities to report this information to the EBA, along with steps they have taken to address them. The materiality of weaknesses depends on the context, and determined based on a non-exhaustive list of criteria which may include:

  • Repetition,
  • Severity,
  • Persistence over a significant period,
  • Impact on the orderly functioning of financial markets, and
  • Negligence and wilful misconduct.

The type of information that EuReCA will collect

The draft RTS provides for three different types of information that shall be transmitted to EuReCA:

  • General Information

This serves to identify the competent authority reporting the information and the financial sector operator that is the subject of the report.

It will include information on inter alia the financial sector operator’s structure, size and if it is part of a group.

  • Information related to the material weakness

Information submitted on the material weakness serves to facilitate the full assessment of the weakness and its impact, or potential impact, as well as the factors that contributed to it.

This information must therefore amongst others contain the type and origin of the weakness, description of the weakness and the factors leading up to it.

  • Information on the actions taken by the competent authorities in response to material weaknesses

This relates to the information transmitted in relation to measures that the competent authorities have taken in response to a material weakness.

This information will enable the EBA to fully understand how the competent authorities have reacted to a material weakness that they have identified and further understand the remediation measures imposed by the competent authority.

Ensuring that EuReCA remains credible and fit for purpose

To guarantee the effectiveness of this central repository of AML/CFT information, the quality, timeliness and completeness of the information in question are essential for the credibility of the system.

As a result, the draft RTS sets out that information must be submitted as soon as possible by the competent authorities in order to prevent ML/TF risk from materialising. Additionally, competent authorities are required to respond without undue delay to any request from the EBA for additional or subsequent information.

The national competent authorities are also obliged to ensure that the information provided to EuReCA remains accurate, complete, appropriate and up-to-date.

Use of the information available on EuReCA

The EBA will use the central AML/CFT database to:

  • Share relevant information proactively on its own initiative with competent authorities in support of their supervisory activities on a risk-based approach;
  • Answer ‘reasoned requests’ for information from competent authorities about financial sector operators to the extent that this information is relevant for competent authorities’ supervisory activities with regard to preventing the use of the financial system for the purpose of ML/TF;
  • Analyse information in the database on an aggregate basis to inform the Opinion on ML/TF risk and to perform risk assessments under Article 9a (5) of the EBA Regulation; and
  • Support the EBA’s work to lead, coordinate, and monitor the EU financial sector’s AML/CFT efforts.

Has EuReCA been implemented?

The final draft of the RTS has been adopted by the EBA and submitted to the European Commission. Once it is approved by the European Commission, the RTS will be directly applicable in all member states.

As of now, there is no indication when the draft RTS will be approved and become applicable.

How does this affect Maltese financial sector operators?

While there are no reporting obligations on Maltese financial sector operations, the RTS and therefore EuReCA, once approved, will be directly applicable in all member states of the EU, including Malta. Domestic competent authorities in Malta would be required to report material weaknesses of individual financial sector operators as well as the measures they have taken to rectify them to EuReCA. EuReCA aims to facilitate the exchange of information between competent authorities, while achieving operational and cost efficiency.

Financial sector operations are required to comply with the full range of AM/CFT obligations applicable to them. Where there are deficiencies or material AML/CFT weaknesses, these will be transmitted to EuReCA. Material weaknesses being transmitted to the EuReCA can be a cause for concern for financial sector operators as it could lead to more regulatory scrutiny on weaknesses, which are broadly defined under the RTS.

In this respect, financial sector operators are required to be more proactive on AML/CFT compliance and alter internal processes as needed to cope with external changes including changes in the laws, rules and regulations. EuReCA clearly merits that existing policies and procedures are revisited. Particularly, financial sector operations must ensure that the existing policies and procedures are fit for purposes and further, adequate controls are implemented to ensure that there are no material AML/CFT weaknesses in their operation.

How can PwC help?

The Financial Crime Compliance (FCC) team of PwC Malta has long experience and expertise in assisting subject persons to meet their regulatory and legal requirements. Our FCC team can assist you with not only understanding applicable AML/CFT obligations, but most importantly, implementing practical controls to effectively meet these obligations and always ensure compliance thereto.

Contact us to set an appointment and find out how you can adopt a more effective, risk-based approach to AML/CFT. By implementing best practice, you will be protecting your business, your investors, your staff, your customers, and your reputation, as well as avoid regulatory censure.

how we can help you

Contact us

Mirko Rapa

Mirko Rapa

Tax Partner, PwC Malta

Tel: +356 2564 6896

Deborah Gatt

Deborah Gatt

Senior Manager, Financial Crime Compliance, PwC Malta

Tel: +356 2564 2343

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