International supervisory Cooperation

and strategic analysis. such cooperation can also take the form of joint training or seminars of the FIU and supervisors for the sectors.

With Reporting Entities

supervisors and other competent authorities are tasked with promoting an understanding of the legal framework and ML/tF risks. they therefore establish guidelines and provide feedback to assist financial institutions in applying AML/CFt measures and promote a clear understanding by financial institutions of their AML/CFt obligations and ML/tF risks.

In Jersey, guidelines to clarify AML/CFt requirements are prepared by the Jersey Financial services Commission with the assistance of a steering group representing the financial industry. the guidelines give special importance to corporate governance issues (board responsibilities, ML/tF compliance officer’s missions, and so forth) and cultural barriers to implementing an effective AML/CFt framework. the guidelines are discussed extensively with the industry. ongoing collaboration between supervisors and the private sector they supervise is critical for the effectiveness of an AML/CFt framework. the private sector is on the front line of ML/tF risks and plays an important gatekeeper function. to achieve this collaboration, both supervisors and private sector entities should forge a working environment based on trust and understanding each other’s roles. A key requirement is that the private sector is included in the conduct of national risk assessments and that the results are shared with all covered entities. the importance of supervisor–private sector collaboration is particularly important for understanding and controlling ML/tF risks. In particular, having a common understanding of national and sectoral risks provides institutions with information to develop targeted ML/tF risk identification and assessment mechanisms and to implement risk-based AML/CFt systems (see appendix A). this, in turn, facilitates the supervisor’s development and implementation of a risk-based AML/CFt supervisory framework.

AML/CFt training is another important tool for supervisor–private sector collaboration. While training for the staff of an institution is the primary responsibility of the institution, supervisors can organize seminars and workshops or participate in training events organized by sectoral associations. supervisors should not, as a general principle, provide training to individual institutions. As mentioned, the FIU generally participates in such training events. supervisors should support the establishment of associations of institutions, associations of compliance officers, or similar initiatives that provide a forum for supervisory cooperation in numerous fields.

INTERNATIONAL SUPERVISORY COOPERATION

General

As indicated by the FAtF guidance, many regulated entities routinely operate across national borders and are therefore subject to AML/CFt supervision by several supervisory authorities in multiple jurisdictions. the ML/tF risks in question are frequently cross-border in nature, and failures in systems and controls in one part of the group may indicate weaknesses elsewhere. therefore, cooperation between supervisors is important to mitigate those risks.

on a regional level, supervisory authorities ensure that AML/CFt cross-border cooperation is promoted and supported.

Cooperation among Supervisors

With the growth and consolidation of international financial groups, the need for effective crossborder supervisory cooperation is increasingly important. Both the FAtF recommendations and the Basel Core Principles require international cooperation for supervisors. the assessment methodology for Recommendation 40 on other forms of international cooperation sets out requirements in essential Criteria 40.12–40.16 for the exchange of information between foreign financial sector supervisors:

● Financial supervisors should have a legal basis for cooperating with their foreign counterparts (regardless of their nature or status), consistent with the applicable international standards for supervision, in particular, with respect to the exchange of supervisory information related to or relevant for AML/CFt purposes.

● Financial supervisors should be able to exchange with foreign counterparts information domestically available to them, including information held by financial institutions, in a manner proportionate to their respective needs.

● Financial supervisors should be able to exchange the following types of information when relevant for AML/CFt purposes, in particular with other supervisors that have a shared responsibility for financial institutions operating in the same group:

■ Regulatory information, such as information on the domestic regulatory system and general information on financial sectors

■ Prudential information, in particular, for the supervisors of Basel Core Principles, such as information on the financial institution’s business activities, beneficial ownership, management, and fit and proper characteristics

■ AML/CFt information, such as internal AML/CFt procedures and policies of financial institutions, customer due diligence information, customer files, samples of accounts, and transaction information.

● Financial supervisors should be able to conduct inquiries on behalf of foreign counterparts and, as appropriate, to authorize or facilitate the ability of foreign counterparts to conduct inquiries themselves in the country, in order to facilitate effective group supervision.

● Financial supervisors should ensure that they have the prior authorization to disseminate information or to use it for supervisory and nonsupervisory purposes, unless the requesting financial supervisor is under a legal obligation to disclose or report the information. In such cases, at a minimum, the requesting financial supervisor should promptly inform the requested authority of this obligation.

specifically, with respect to bank supervisors, Basel Core Principle 3 requires jurisdictions to put in place laws, regulations, or other arrangements that provide a framework for cooperation and collaboration with relevant domestic authorities and foreign supervisors. these arrangements reflect the need to protect confidential information. With respect to banking groups, Basel Core Principle 13 requires home and host supervisors of cross-border banking groups to share information and

cooperate for effective supervision of the group and group entities and effective handling of crisis situations. supervisors require local operations of foreign banks to adhere to the same standards as those required of domestic banks.

Multinational Supervision

ECCB

the eastern Caribbean Central Bank (eCCB) was established in october 1983. It is the monetary authority for a group of eight island economies: Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, st. Kitts and nevis, st. Lucia, and st. Vincent and the Grenadines. the eCCB conceives of its mission as balancing prudential supervision with AML/CFt supervision to ensure an integrated approach (eCCB n.d.). the AML/CFt supervision framework includes the following:

● the AML/CFt legislation in eastern Caribbean Currency Union member jurisdictions, which transfers the AML/CFt regulatory and supervisory authority for licensed financial institutions to the eCCB

● the multilateral memorandum of understanding between AML/CFt supervisory authorities in the eastern Caribbean Currency Union, which provides a framework for cooperating in the supervision of licensed financial institutions and for implementing an effective AML/CFt system for the financial institutions for which the central bank has regulatory responsibility

● Implementation of an AML/CFt risk-based on-site examination manual

● Development and implementation of the ML/tF prudential return and the ML/tF risk assessment tool

● Partnership with key stakeholders to ensure ongoing training on emerging AML/CFt issues.

the eCCB established an AML supervisory unit within the Bank supervision Department in April 2018 to focus primarily on developing and implementing the AML/CFt risk-based supervision framework for licensed financial institutions. the eCCB executed a multilateral memorandum of understanding in August 2018 that provides a framework for mutual cooperation in the supervision of compliance with the legal obligations for licensees to establish and implement an effective AML/CFt system. the eCCB has been named as the AML/CFt supervisory authority in three territories and continues to encourage its member governments to amend the necessary AML/CFt legislation to name the eCCB as the AML/CFt supervisory authority for its licensees (eeCB 2019).

European Union

the european Banking Authority (eBA) is responsible for leading, coordinating, and monitoring AML/CFt efforts across the entire eU financial sector (eBA 2020a). the eBA discharges its functions in this field by the following: ● Leading the development of AML/CFt policy and supporting its effective implementation by competent authorities and financial institutions across the eU to foster an effective risk-based approach to AML/CFt with consistent outcomes

● Coordinating across the EU and beyond by fostering effective cooperation and information exchange between all relevant authorities in a way that supports the development of a common understanding of ML/TF risks, strengthens risk-based AML/CFT supervision, ensures that emerging risks are dealt with promptly across the single market, and ensures that oversight of cross-border financial institutions is effective ● Monitoring the implementation of EU AML/CFT policies and standards to identify vulnerabilities in competent authorities’ approaches to AML/CFT supervision and to take steps to mitigate them before ML/TF risks materialize (figure 7.3).

FIGURE 7.3 Role of the European Banking Authority in Coordinating AML/CFT Efforts in the European Union

Coordinate

The EBA will coordinate competent authorities’ AML/CFT supervision e orts to ensure the timely and e ective identification and management of cross-border ML/TF risks

EBA

Information

FIUs and 3rdcountry authorities

AML/CFT supervisors

Supervision

AML/CFT colleges

Cooperation

Prudential colleges Prudential supervisors

Supervision

Credit and financial institutions

Source: EBA 2020a. Note: AML = anti-money-laundering. CFT = combating the financing of terrorism. FIU = financial intelligence unit. ML = money laundering. TF = terrorism financing.

The EBA monitors the implementation by EU authorities of EU AML/CFT standards to identify vulnerabilities in their approaches to AML/CFT supervision and to take steps to mitigate them before ML/TF risks materialize. It does not have direct supervision or enforcement powers. However, it does foster effective cooperation and information exchange between all relevant authorities in a way that supports the development of a common understanding of ML/TF risks, strengthens risk-based AML/CFT supervision, ensures that emerging risks are dealt with promptly across the single market, and ensures effective oversight of cross-border financial institutions (EBA 2020a).