The European Banking Authority (EBA) has detailed how prudential supervisors should consider money laundering and terrorist financing (ML/TF) risks in the context of the Supervisory Review and Evaluation Process (SREP).

The newly launched Opinion forms part of the EBA’s ongoing work to strengthen the fight against money laundering and terrorist financing in Europe.

The group underlined that money laundering and terrorist financing can have a significant, adverse impact on an institution’s soundness and viability. As well as having an impact on the stability and integrity of the financial system in which an institution operates. 

Emphasising this is why prudential supervisors need to develop a sufficient understanding of ML/TF risks to enable them to identify ML/TF risks and prudential concerns. ML/TF risks that are particularly relevant to prudential supervisors include those that are indicative of broader deficiencies in the internal governance or internal controls framework, such as ICT-related weaknesses, that criminals can use.

The EBA expects prudential supervisors to cooperate effectively and in a timely manner with AML/CFT supervisors to exchange information on ML/TF risks and to assess the implication of those risks for the safety and soundness of the institution they supervise.

This applies to prudential and AML/CFT supervisors that form part of the same competent authority, as it does to prudential and AML/CFT supervisors from different competent authorities and in cross border situations.

The EBA will include more detailed guidance on how ML/TF risks should be considered by prudential supervisors as part of their overall SREP assessment in the revised version of the SREP Guidelines that is planned to be published by end December 2021 as set out in the Pillar 2 roadmap.