European Union: Overview of Relevant KYC/CDD Laws and Regulation

European Union

The European Union member states, to contribute to strengthening the AML/KYC framework, are developing efficient and robust means of customer due diligence (CDD) and Know Your Customer (KYC), by opening up the mutualization opportunities and fostering a digital economy within EU member states. The customers’ electronic identification and remote KYC processes are the subject domain for the EU member states. The scope for portable CDD solutions is particularly the core area of consideration, by the EU member states for the banking sector. The targets for the EU member states are to curtail money laundering, drug-trafficking-related proceeds, tax evasion, terrorist financing, human trafficking, and state-sponsored and corporate bribery.  

European Union

The European Union

The measures are taken to consider the key challenges building on the electronic ID interoperability framework with additional sets of attributes to enhance the CDD measures and KYC framework. It includes the assessment of the necessary set of measures that are necessary for the CDD purposes, in the banking sector and the appropriate level of required assurance for the implementation of CDD processes.

Following three broad topics, how CDD attributes can meaningfully be related to the defined levels of assurance in general and what benefits the KYC and CDD framework may bring to the financial sector to achieve desired regulatory objectives. It is acknowledged that the multi-dimensional impact of KYC processes in the digital age has been aimed at the KYC solutions to bring enhanced process improvements, and facilitate KYC-related services within the European Union as well as financial inclusion. 

Money laundering has been criminalized in Europe and the predicate offenses have widened from drug trafficking to the proceeds of all crimes. Europol has established itself internationally in anti-money laundering (AML) practices. The Egmont Group has grown into a large international organization consisting of various financial intelligence units, representing the operational arm of AML/CFT to complement the strategic arm of the FATF. Fifteen European Union member states are direct FATF members, and the remaining thirteen are members of Moneyval, the European regional version of FATF. 

Strengthening the existing ML/TF framework and adjusting it to digital/remote onboarding interaction reducing the fragmentation of the EU KYC landscape and ensuring a level playing field for cross-border services eliminating regulatory arbitrage opportunities. 

The three dimensions must not be viewed in isolation nor as intrinsically in conflict, as it is believed that progress can be achieved in all areas simultaneously. The high level of customer onboarding practices can be attributed to the deployment of digital ID solutions and may help in reducing the AML/CFT risk factors as emphasized by the EU regulatory authorities. 

There is no doubt that the EU approach to combat money laundering, is recognized by all EU Member States. To implement effective anti-money laundering (AML) policies, the scope of AML/CFT action is expanded greatly, and the success of AML policies has been very limited. EU regulatory authorities recognized that the money launderers and criminals are aided by technology, which has necessitated continual adaptation of the AML/KYC regulatory framework. 

Given the ongoing monitoring and law enforcement challenges, the EU Commission and some member states have come out in favor of the creation of an EU-wide AML supervisory agency to assist in reducing the coordination and cooperation issues in the process of AML enforcement, particularly across borders. 

Based on the EU’s principles of proportionality, a thorough cost and benefit analysis for the AML rules could guide the way to a more measured and effective AML/KYC approach. 

European Union

It is recognized by the EU member states, that the Europe-Wide supervisory agency serves as the sole solution. The AML supervision requires the cooperation of a multitude of supervisory entities, financial and non-financial supervisors, FIUs, and law enforcement officials, as well as the obliged entities themselves. In the EU context, this means well more than 100 supervisory agencies and many tens of thousands of obliged entities. It raises the issue of EU competence, certainly in the law enforcement domains. The European Banking Authority (EBA), with a distinct and more effective governance structure, is enhancing, to cater to the AML affairs and issues, faced by the institutions.

Joint action regarding the proper functioning of FIUs at the EU level, and cooperation of the EU Member States is strongly recommended and the nature and tasks of the FIUs are better harmonized. The EU-wide interconnection of the FIUs is hosted by Europol because of data protection reasons. Policymakers are addressing the FIU cooperation at the EU level; 

The EU member states established a uniform template for the suspicious transaction reports STRs, to be integrated into the centralized platform. The focus of the regulatory authorities is to take appropriate measures, for the improvement in the process of data sharing between the enforcement bodies in the EU, including across national borders. This relates not just to types of data but amounts to the speed of data sharing, and its security.

Final Thoughts

European Union (EU), international organization governing common economic, social, and security policies among 27 European countries. Initially limited to Western Europe, the EU began a rapid expansion into Central and Eastern Europe in the early twenty-first century. Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden are all members of the EU. The United Kingdom, a founding member of the EU, will leave the organization in 2020.