EBA ¦ Report on NCAs approaches to the supervision of banks with respect to AML/CFT

European Banking Authority’s Fourth Review Highlights Progress and Challenges in AML/CFT Supervision of Banks Across EU/EEA

The European Banking Authority (EBA) has released the findings from its fourth and final round of reviews on how national competent authorities (NCAs) supervise banks to combat money laundering (ML) and terrorist financing (TF) risks within the EU/EEA. This comprehensive assessment covers all 40 NCAs responsible for Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) supervision across 30 member states.

Progress in Implementing Risk-Based Supervision

Since the first review in 2018, NCAs have made notable strides in adopting risk-based approaches to AML/CFT supervision. Many have enhanced their risk assessment methodologies, established stand-alone AML/CFT units, and increased resources dedicated to these efforts. Cooperation has improved, especially through AML/CFT colleges, and there is a growing understanding among prudential supervisors of ML/TF risks and their impact on banking sector soundness.

Good practices have emerged, such as comprehensive sectoral risk assessments, coordinated supervisory strategies, and more thorough supervisory tools, including on-site inspections supported by detailed manuals.

Persistent Weaknesses and Challenges

Despite progress, the EBA identifies ongoing weaknesses that hinder effective AML/CFT supervision:

• Risk Assessment Gaps:

  Many NCAs' sectoral and entity-level risk assessments lack completeness and granularity. Some rely heavily on outdated national risk assessments or fail to differentiate between money laundering and terrorist financing risks. The weighting of risk factors and incorporation of supervisory judgment remain inconsistent.

• Supervisory Strategy and Tools:

  Several NCAs lack formal, documented AML/CFT supervisory strategies, resulting in uneven supervisory intensity and coverage. Supervisory tools are underutilized or applied inconsistently, reducing the ability to detect vulnerabilities effectively.

• Enforcement Issues:

  Enforcement processes often lack clear policies or criteria for sanctioning breaches, leading to inconsistent sanctions that are sometimes viewed as insufficiently deterrent. The publication of enforcement actions varies, limiting their educational impact.

• Prudential Supervision Integration:

  There are divergent approaches in how prudential supervisors consider ML/TF risks. Cooperation between prudential and AML/CFT supervisors is often informal and inconsistent, which may result in missed warning signs during authorizations and fit-and-proper assessments for bank management and ownership.

• Cooperation Limitations:

  Domestic cooperation with financial intelligence units (FIUs) exists but is frequently limited to informal or irregular exchanges. Engagement with tax authorities is notably weak, with few formal arrangements. International cooperation is uneven; some NCAs do not participate adequately in AML/CFT colleges or coordinate with foreign regulators overseeing branches or subsidiaries.

Bastian Schwind-Wagner_Follow "The European Banking Authority’s final review highlights significant improvements in EU banks’ AML/CFT supervision but underscores ongoing challenges in risk assessment, enforcement, and cooperation. These findings will guide national authorities and support the transition to the new EU Anti-Money Laundering Authority (AMLA)."

Recommendations for Improvement

The EBA recommends tailored actions for each NCA but emphasizes several common priorities:

• Develop comprehensive, documented risk assessment methodologies that clearly distinguish between ML and TF risks.
• Establish formal AML/CFT supervisory strategies with measurable objectives and ensure adequate resource allocation aligned to risk profiles.
• Enhance supervisory manuals and techniques to apply a full range of tools proportionate to assessed risks.
• Formalize enforcement policies to ensure sanctions are effective, proportionate, dissuasive, and consistently applied; increase transparency of enforcement decisions.
• Strengthen cooperation frameworks domestically between AML/CFT supervisors, prudential supervisors, FIUs, and tax authorities through formalized agreements and regular information sharing.
• Improve international cooperation by actively participating in AML/CFT colleges and establishing bilateral arrangements with foreign authorities to facilitate joint inspections and information exchange.
• Integrate prudential and AML/CFT supervision more effectively, particularly regarding authorizations, approvals of qualifying holdings, and suitability assessments for bank management.

Looking Ahead: The Role of AMLA

The EBA’s reviews pave the way for the new EU-wide Anti-Money Laundering Authority (AMLA), which will become fully operational in 2026. AMLA is expected to standardize risk assessment methodologies across the EU, set common supervisory expectations, and directly supervise the largest high-risk institutions. The EBA will transfer its AML/CFT mandate to AMLA by December 2025 but will continue addressing ML/TF risks through prudential regulation.

Conclusion

The EBA’s fourth review reflects both meaningful progress by NCAs in strengthening AML/CFT supervision of banks and persistent challenges that need addressing to ensure a robust defense against financial crime. By following the EBA’s recommendations and with AMLA’s upcoming role, the effectiveness of AML/CFT supervision in the EU banking sector is expected to improve significantly, supporting safer and more resilient financial systems.

Dive deeper

• EBA ¦ Competent authorities have made significant progress in their approaches to tackling money laundering and terrorist financing, the EBA Report finds ¦ Link