“We still have a long way to go”

Erscheinung:26.01.2023 | Topic Anti-money laundering"We still have a long way to go"

On 8 December 2022, experts discussed current regulatory trends at BaFin's conference on combating money laundering and terrorist financing. What does BaFin expect from supervised entities in the area of money laundering prevention? A short commentary by Birgit Rodolphe, Chief Executive Director of Resolution and Prevention of Money Laundering at BaFin.

It is a well-known fact that our objective is to help ensure, together with supervised entities, that the financial system is not used for money laundering purposes. Are we on the right path? Yes - and we can see this in the many supervisory interviews we conduct with obliged entities. Have we fully achieved this objective? No - and we still have a long way to go. The prevention of money laundering has become a hot topic, and the speed at which technologies are evolving has increased significantly, too. The requirements to prevent money laundering are increasing, resulting in further challenges for both the entities under BaFin's supervision and for BaFin itself.

We have therefore significantly boosted our resources in this area. As of March 2022, two BaFin directorates have been responsible for the supervision of money laundering prevention. In total, around 150 colleagues in 12 divisions are now working in this specific area. Supervised entities have also become aware of the fact that the supervision of money laundering prevention in the financial sector is being reinforced in Germany.

I would like to give a few examples of the challenges we repeatedly face in practice in the field of money laundering prevention:

The prevention of money laundering and terrorist financing is often outsourced to service providers - and this is also true for the role of anti-money laundering officers. Outsourcing can lead to more efficiency, but at the same time, we have noticed that, in some cases, the prevention of money laundering is not as effective when it is outsourced. For this reason, I am calling on obliged entities to always carefully monitor the quality of external service providers. As a result of the German Act to Strengthen Financial Market Integrity (Finanzmarktintegritätsstärkungsgesetz- FISG), we are now able to conduct inspections directly at outsourcing providers. We have already carried out such inspections and we will continue to do so.

It is also crucial that prevention systems keep up with business developments. The safeguards for combating money laundering and terrorist financing must reflect risk appetite and expand in line with business growth. As the requirements for money laundering prevention are increasing, investments and innovation in this area must evolve appropriately. Two other things are essential for effective money laundering prevention: having a profound and realistic understanding of one's own risks and continuously monitoring whether preventive measures are effective. As far as work structures and cooperation models are concerned, it is clear who we consider to be responsible for the prevention of money laundering: anti-money laundering officers.

As they must comply with a growing number of requirements, banks and non-banking entities should ensure that anti-money laundering officers and their staff are given more attractive working conditions and have access to high-quality training. It should also be noted that good anti-money laundering officers are in short supply. Supervised entities are therefore advised to train their anti-money laundering staff themselves if possible and to appoint a second, deputy anti-money laundering officer at an early stage. The following point is also important: BaFin has a legal mandate to supervise the systems that obliged entities have in place to prevent money laundering and terrorist financing. We take various measures for this purpose from our supervisory toolbox, and if legal requirements are not met, we can impose fines or take action to restrict business activities in serious cases.

We are expecting the rules and regulations for money laundering prevention to be tightened and further harmonised in Europe. As a new European Anti-Money Laundering Authority (AMLA) is to be created, and related European rules and regulations are to be implemented in the near future, a more consistent approach will be taken across Europe for the supervision of anti-money laundering, and certain rules will be more stringent. For instance, the existing German Crypto Asset Transfer Regulation (Kryptowertetransferverordnung - KryptoWTransferV) will be replaced by the European Funds Transfers Regulation. This Regulation is set to expand its scope to include crypto asset transfers. There are also plans to tighten the rules for the identification of beneficial owners, as part of the new EU Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. This Regulation is expected to result in more data on beneficial owners being required.

Obliged entities will therefore have to make extensive efforts. We are aware that this could be a challenge for the relevant entities, but these efforts are crucial because we urgently need more transparency. Ultimately, the aim is to ensure that obliged entities use their prevention systems to help stop funds from criminal activities finding their way into the legitimate financial and economic system. As soon as they have identified a suspicious transaction, obliged entities must submit a suspicious transaction report to the Financial Intelligence Unit (FIU) without undue delay. The FIU then analyses such reports and informs the relevant prosecuting authorities of suspicious cases. The private sector and public authorities are thus working together to achieve the following goal: preventing money laundering and terrorist financing.

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