In a landmark decision in February 2024, the European Union (EU) chose Frankfurt, Germany, as the home for its newly established anti-money laundering authority, AMLA. This move is more than just a new pin on the EU's regulatory map; it represents a significant step in the EU's ongoing fight against financial crime, including money laundering and terrorist financing.
Here’s what you need to know about its intended role, its potential for effectiveness, and how it fits into the broader narrative of the EU's regulatory successes and challenges.
Understanding AMLA's core objectives
AMLA's inception is a direct response to the need for stronger, more unified action against the sophisticated networks of money laundering that have plagued Europe and aims to address the legal and regulatory patchwork that’s hindered earlier reforms. Its mandate is threefold: it covers regulatory authority, supervision, and plays a coordinating role for the EU’s financial intelligence units (FIUs).
The body will take over a part of the European Banking Association’s mandate to issue regulations. With the new directive and regulation, it will also receive more powers to issue guidance, recommendations, and regulatory technical standards for financial crime.
By centralizing and coordinating supervision, AMLA aims to ensure that anti-money laundering (AML) and counter-terrorist financing (CTF) regulations are applied consistently and effectively across all member states. It’ll work alongside national authorities to directly supervise the 40 financial institutions within the union that pose the highest risk. For all other financial institutions and designated non-financial businesses and professions, AMLA will serve as a knowledge hub, support, and arbitrator in case of conflict between regulators. Last, but not least, it will act as the mainstay in the network of FIUs in the EU, with liaison officers representing all EU FIUs.
Essentially, it will be a pan-European version of Spain’s SEPBLAC, which is a combination of regulator, supervisor, and FIU in one body. The Spanish example has proven to be highly efficient and has led to the country receiving comparatively good scores from the Financial Action Task Force (FATF). Hopefully we’ll see a similar result across Europe when AMLA is fully functional.
Frankfurt: a strategic choice
The decision to base AMLA in Frankfurt is not just about geography—it's a strategic move that places the authority at the heart of Europe's financial sector. Frankfurt's established reputation as a financial hub is expected to facilitate closer cooperation between AMLA and some of the world's largest banks and financial institutions, and with other critical EU bodies like the European Central Bank and the European Insurance and Occupational Pensions Authority.
This proximity is of course important for fostering a collaborative regulatory environment that can adapt to and address the evolving landscape of financial crime. However, it also requires expert staff who wish to work at the new authority to relocate, which (in combination with government salaries) raises questions about AMLA’s ability to attract the best minds in the anti-financial crime field. The alternative would be to try to recruit from the local banks and authorities in an already very tight labor market.
The broader EU regulatory tapestry
To gauge AMLA's potential impact, it's important to contextualize it within the EU's historical regulatory framework. The EU has a mixed track record when it comes to establishing effective regulatory bodies.
On one hand, there have been notable successes like the European Medicines Agency (EMA), which has played a crucial role in ensuring the safety and efficacy of medicines across the EU.1
The Single Supervisory Mechanism (SSM),2 which has a similar supervisory mandate as AMLA for prudential risk, is another example of an effective regulatory body established by the EU. It was started shortly after the experience of the crises in 2008 and 2010. Today the SSM supervises over 80% of all banking assets in the Eurozone. Since the body’s inception, the region hasn’t experienced any major banking failures.
On the other hand, the EU has faced significant challenges, such as those highlighted by its ongoing rule-of-law crisis.3 The crisis underscores the difficulties in ensuring that all member states adhere to the Union's foundational principles, including the enforcement of AML and CTF regulations.
Future challenges for AMLA
Looking ahead, AMLA's effectiveness won’t be measured only by its ability to streamline and enforce AML/CTF regulations, but also by its capacity to navigate and adapt to the rapidly changing financial landscape. That includes dealing with the constantly evolving nature of financial crime and the geopolitical complexities that influence financial systems. In this dynamic environment, AMLA's success will depend on its adaptability, its ability to foster international cooperation, and its commitment to leveraging technology for effective supervision.
The establishment of AMLA in Frankfurt thus represents a bold and necessary step towards strengthening the EU's defenses against financial crimes.
While it's strategic positioning and mandate offer a beacon of hope, its true effectiveness will be tested by its ability to unify member states under a common regulatory framework, adapt to new challenges, and enforce its policies across the diverse financial landscape of the EU. As it begins its work, the question of how fierce the new watchdog is going to be remains open, but its potential to significantly impact the fight against money laundering and terrorist financing is undeniable.
Sources:
1. History of EMA, European Medicines Agency, accessed March 6, 2024
2. Single Supervisory Mechanism, European Central Bank, accessed March 6, 2024
3. The EU must face its rule of law crisis, Chatham House, May 17, 2023
