EBA and ESMA revise internal governance guidelines to combat money laundering

July 31, 2020. Print article

Two European financial regulators launched a public consultation to revise guidelines on internal governance Friday, as they sought to enhance supervision of credit institutions for money laundering and terrorist financing risks. 

The and the European Supervisory Market Authority together released a draft of new guidelines that further specify "the framework regarding loans to members of the management body and their related parties."

The loans and other transactions with members of the management body have the potential to create conflicts of interest, the European Banking Authority said, which is a primary reason for the updated guidance on how to properly manage them.

According to the , in order for money laundering to occur the funds involved must be the proceeds of criminal conduct. And for terrorist financing to occur, the source of funds involved is irrelevant, and they can be from a legitimate or illegitimate source.

The bank said the key consideration when taking measures to prevent terrorist financing is to examine the intended use or destination of the funds as opposed to their origin.

"Uncovering any involvement of credit institutions and investment firms in money laundering and terrorist financing can have an impact on the viability and trust in the financial system," the European financial regulators said.

"In this context, the draft joint guidelines clarify that the knowledge, experience and skill requirements are important aspects in the fit and proper assessment of members of the management body and key function holders as they contribute to identifying, managing and mitigating money laundering and financing of terrorism risks." 

The consultation paper also contains new guidance on the code of conduct for credit institutions to avoid discrimination and guarantee equal opportunities to staff of all genders. 

The paper takes into account a new legislative framework adopted in 2019 for investment firms in the EU, which subjects the identification of the investment firms to various guidelines. A public hearing on the matter will take place Oct. 1, and the consultation will accept stakeholder comment on the amendments until Oct. 31.

Last month, the European Banking Authority updated another segment of its guidance for financial institutions, regarding changes made necessary by the COVID-19 pandemic. It imposed additional reporting requirements for lending measures undertaken in response to the coronavirus. 

The new guidelines covered reporting and disclosure requirements to monitor the use of payment moratoriums, reporting and disclosure requirements for the new loans subject to specific public guarantees set up to mitigate the effects of COVID-19 and reporting requirements on other forbearance measures applied in response to COVID-19.