Combat of Money Laundering in the EU Banking Sector: Remarks by Mauro Grande, SRB Board Member


Public Hearing: ‘Combat of Money Laundering in the EU Banking Sector’ of the European Parliament’s Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance, 26 April 2018


Mr Chairman,

Honourable Members of the European Parliament,

Thank you for inviting me to discuss the important topic of how to strengthen checks and controls to reduce money-laundering risks in the banking system.

The mission of the Single Resolution Board is to ensure an orderly resolution of failing banks with minimum impact on the real economy, the financial system, and the public finances of the participating Member States and beyond. This does not mean that we wait for resolution cases to handle. Our role is proactive: we focus on resolution planning and preparation, to ensure resolvability of banks under our remit and minimise the potential negative impact of a bank failure.

As such, it is clearly not within the mandate of the SRB to detect and tackle money laundering. This said, the SRB has a natural interest in the topic, given the impact that money laundering, and related allegations can have on a bank’s viability.

We are therefore happy to share the lessons we drew from the recent case of ABLV (discussed in the first panel): my introductory remarks today will focus on ABLV, and present reflections from the perspective of a resolution authority.

On 13 February 2018, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking seeking to prohibit the opening or maintaining of a correspondent account in the US for, or on behalf of, ABLV. FinCEN proposed this measure based on its finding that ABLV is “a financial institution of primary money laundering concern”. [This was communicated to the ECB, which then informed the SRB, only shortly before publication of the notice.]

The announcement by FinCEN gave rise to a sudden wave of deposit withdrawals and requests for withdrawals; and a lack of access to US Dollars funding, which resulted in ABLV being unable to make payments in US dollars. To stop the liquidity outflow, on 18 February, the National Competent Authorities of the parent company in Latvia and of the subsidiary in Luxembourg, instructed by the ECB, suspended all payments by the banks.

On 23 February, the ECB reached the conclusion that ABLV Latvia and ABLV Luxembourg were deemed to be failing or likely to fail (FOLTF): the significant deterioration of their liquidity position was making them unable to pay their debts or other liabilities as they fell due. Following this development, the SRB concluded that for these two banks resolution action was not in the public interest, as they did not provide critical functions for the economy of one or more Member States and their failure was not expected to have a significant adverse impact on financial stability in Latvia, Luxembourg or other Member States.

We have already discussed this case with members from the Committee on Economic and Monetary Affairs, and our views on how it highlights the need to harmonise national bank insolvency proceedings and align them with the FOLTF criteria. These are important lessons learnt for us and for legislators but are not the topic of this hearing.

With regard to “money laundering risks”, for us the ABLV case is a reminder that when these risks materialise, similar to other operational risks, they can lead to an immediate loss of trust in the bank. This can trigger sudden and significant outflows of liquidity, and make the bank fail in a very short time-frame. This leaves the SRB with an extremely narrow window to assess whether it is in the public interest to resolve the bank, and, if so, to adopt an appropriate resolution scheme.

As such, from our perspective as resolution authority, this case recalled the importance of taking into due account different types of operational risks, including reputational risk, as part of our resolution planning and particularly in our dialogue with the supervisor.

The first lessons we can draw is that, to inform this dialogue between us and the supervisors, it is key that relevant information on AML risks is communicated to the supervisors, and to us, as soon as possible. In our view, the fifth review of the Anti-Money Laundering Directive makes some progress in this respect, as it clarifies the basis for exchange of information between the national authorities responsible for AML and prudential supervisors. Enforcement and operationalisation of such exchange of information is key.

Secondly, once information is improved, the dialogue with supervisor could better assess business models more “susceptible” to reputational risk, and take this into account when considering the possible scenarios of failure of the banks under SRB remit (in light of the specific speed of failures due to materialisation of reputational risks).

Beyond these lessons learnt from the specific perspective of resolution authority, let me share some more general thoughts on the AML policy framework and enforcement.

AML rules in the EU are still subject to only a minimum harmonisation, through a Directive rather than a Regulation. Moreover, the enforcement of these rules is notably entrusted to different national authorities across the EU Member States. Legislators should assess whether not only the exchange of information, but also the level of harmonisation of AML rules, and the split of competences is still fit for purpose or if, for instance, a Regulation rather than a Directive, and a centralised enforcement with a separate EU authority would improve the consistency and effectiveness of the framework. This is why we welcome the provision of AMLD 5 requiring the European Commission to consider proposing the establishment of a European FIU in future.

Coming to a conclusion, trust is a key premise of the banking sector. When trust is eroded, the financial situation of an institution can very quickly deteriorate. ABLV is the only the most recent reminder of this theorem. While we stand ready to minimize the negative repercussions of a bank failure - which can indeed be due to the materialisation of operational risks such as money-laundering activities – it is in everybody’s interest to address risks before they can materialise.

Therefore, we support any attempt to ensure that the EU is equipped with a sound, up-to-date legislative framework, rigorously enforced to prevent, detect and address not only money-laundering risks – but other operational risks as well.

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