Egmont Group ¦ Horizontal Analysis of AML/CFT Effectiveness in Europe II (IO2, IO6, R29 and R40)

Enhancing the effectiveness of the AML/CFT mechanism – lessons from a horizontal analysis of Mutual Evaluation Reports

A horizontal analysis of 23 Mutual Evaluation Reports (MERs) from the Europe II Regional Group shows a clear pattern: many jurisdictions have the legal and institutional building blocks required by the FATF, but operational implementation often lags. The review focuses on Immediate Outcome 6 (use of financial intelligence), Immediate Outcome 2 (international cooperation), and Recommendations 29 and 40. Its purpose is not to judge individual countries, but to surface recurrent strengths, recurring weaknesses, and practical recommended actions that can be pursued regionally and nationally to improve real-world AML/CFT results.

Jump to: Luxembourg-specific considerations

Key cross-cutting findings

The analysis demonstrates that technical compliance alone is not enough.

Jurisdictions with substantial or high effectiveness combine

• sound legal frameworks with well-resourced, autonomous FIUs;
• structured national coordination;
• robust STR quality and reporting processes;
• meaningful strategic analysis; and
• routine, results-driven use of financial intelligence by law enforcement.

In contrast, those with moderate or low effectiveness typically share a set of operational gaps: low-quality or defensive STRs, limited FIU resources and analytical capacity, weak or inconsistent law enforcement agency (LEA) use of FIU disseminations, slow or heavily procedural international cooperation, and insufficient feedback loops to reporting entities and partners. These gaps reduce the likelihood that intelligence generates investigations, asset tracing, prosecutions, and confiscations.

Immediate Outcome 6 – core messages and operational priorities

IO.6 assesses whether FIU outputs and other information are actually used to investigate and disrupt money laundering, terrorist financing and related predicate offences. The horizontal review highlights four interlinked priorities:

STR quality and reporting process

Poorly targeted, defensive, or incomplete STRs – particularly from non-financial sectors and some DNFBPs – overwhelm FIU pipelines and limit the FIU’s ability to produce actionable analysis. Modern, user-friendly electronic reporting channels, sector-specific guidance and routine feedback to reporters materially improve report quality and utility.

FIU resourcing and analytical capacity

Many FIUs lack sufficient staffing, IT, analytical tools and continuity to sustain both operational and strategic analysis. Upgrading case management systems, analytics and ensuring stable staffing are essential to turn STRs into high-value intelligence.

LEA integration and use of financial intelligence

The most decisive horizontal factor distinguishing higher-performing systems is routine, systematic LEA use of FIU disseminations. Where LEAs treat FIU reports as investigative leads, parallel financial investigations, asset tracing, and prosecutions are more frequent. Where this integration is weak, disseminations too often produce no follow-up.

Strategic analysis and feedback loops

Strong FIUs pair operational products with strategic reports and typologies that inform supervisors, LEAs and reporting entities. Structured feedback from LEAs and prosecutors to FIUs and reporters completes a learning cycle that raises STR quality and improves prioritisation.

Bastian Schwind-Wagner _Follow

"This horizontal review shows that many Europe II jurisdictions have the legal frameworks required by FATF but still struggle to turn rules into results. Strengthening operational capacity, improving STR quality, and ensuring routine LEA use of FIU products are essential to move from compliance to tangible outcomes.

Common operational shortfalls – low‑quality STRs, limited FIU resources, weak LEA integration, and slow international cooperation – explain why effectiveness lags despite sound laws. Addressing these issues through targeted resourcing, structured feedback, and practical cooperation protocols will materially improve detection, investigations, and asset recovery."

Immediate Outcome 2 – international cooperation enablers and bottlenecks

The review found generally stronger performance under IO.2 than IO.6, but persistent practical obstacles remained:

Timeliness and prioritisation

Delays in responding to foreign requests commonly result from domestic information-gathering bottlenecks, lack of triage/prioritisation protocols, or resource constraints. Clear prioritisation rules and expedited handling for urgent requests shorten response times and improve cooperation outcomes.

Spontaneous exchange and proactivity

Higher-performing FIUs proactively share relevant intelligence with foreign counterparts and sign MOUs or use secure platforms (Egmont Secure Web, goAML). Lower-performing FIUs are more reactive and share spontaneous disclosures less frequently, hindering timely cross-border investigations and asset recovery.

Legal and operational scope

Where FIUs lack clear legal authority to request data from financial intermediaries on behalf of foreign counterparts (or depend heavily on other domestic authorities to collect that data), international cooperation becomes slower and less effective. Expanding lawful FIU information-gathering powers – with appropriate safeguards – can materially speed cross-border exchanges.

Recommendation 29 and Recommendation 40 – translating legal foundations into outcomes

Most Europe II jurisdictions score well on technical compliance with R.29 (FIU functions, independence and resources) and R.40 (international cooperation), but the horizontal analysis reveals that even when legal frameworks are broadly compliant, practical deficiencies persist.

The common priorities to close the gap from technical compliance to operational effectiveness are predictable and practical:

• allocate reliable resources,
• strengthen FIU operational independence and budget stability,
• clarify and broaden FIU powers to obtain information, adopt secure and interoperable IT tools, and
• embed processes that enable prompt, spontaneous international sharing while protecting confidentiality.

Concrete, evidence-based recommendations

The horizontal review yields focused actions that jurisdictions and international partners can implement without waiting for wholesale legal reform. The following recommendations are prioritized by likely impact on effectiveness.

Strengthen FIU institutional backbone

Ensure predictable funding, recruit and retain analytical specialists, modernise IT/case-management platforms, and develop analyst handbooks and career pathways to preserve institutional memory. Stable resources and specialised staff are preconditions for both operational outputs and strategic analysis.

Improve STR relevance and reporting channels

Adopt user-friendly electronic reporting, issue sector-tailored red-flag guidance, provide regular feedback to reporting entities, and engage supervisors to address systemic reporting deficiencies. Move reporting away from defensive, rule-based filings toward suspicion-based, risk-aligned submissions.

Embed financial intelligence into LEA workflows

Develop formal guidance and training for investigators and prosecutors on using FIU disseminations as investigative leads; create protocols that track conversion of disseminations into investigations and outcomes; and promote joint operational units or taskforces for complex and transnational cases so that FIU intelligence promptly triggers investigations and asset-tracing activity.

Institutionalise national coordination and prioritisation

Establish standing multi-agency coordination bodies (taskforces, working groups) with clear referral and feedback procedures, triage rules for STRs and international requests, and joint scenario exercises. Effective cooperation between FIU, LEAs, prosecutors, supervisors and customs is a hallmark of higher-performing systems.

Expand practical international cooperation

Reduce dependency on bilateral MOUs where legal frameworks permit secure exchange via international channels; authorise FIUs, with appropriate safeguards, to request data from financial intermediaries on behalf of foreign counterparts; adopt prioritisation protocols for urgent requests; and promote proactive sharing of intelligence where it materially supports investigations.

Make strategic analysis a core FIU output

Mandate strategic reporting where absent, and invest analytical capacity to produce typologies, trend reports and risk-based guidance that inform supervisors, reporting entities and law enforcement. Strategic products should drive prioritisation and outreach.

Introduce measurable monitoring and feedback

Set and monitor KPIs that reflect effectiveness (e.g., proportion of disseminations that lead to investigations, asset-freezing actions, prosecutions and confiscations), not just volume metrics. Use structured LEA feedback to refine analysis and reporting guidance.

Implications for the Egmont Group and international assistance

The Egmont Group can leverage these findings to prioritise peer-to-peer assistance that focuses on operational implementation:

• mentoring exchanges between stronger and weaker FIUs on strategic analysis and dissemination practices;
• supporting technology interoperability and secure platforms;
• promoting typology-sharing repositories; and
• developing practical toolkits on triage, prioritisation and LEA integration.

Technical assistance that targets operational bottlenecks – analytics, IT, analyst training, and national coordination – will likely produce faster, measurable improvements than assistance limited to legal drafting alone.

Luxembourg specific considerations

Positioning of the topic within the Luxembourg regulatory and market environment

In Luxembourg, the application of AML/CFT principles is embedded in a tightly regulated financial ecosystem dominated by banks, investment funds, professionals of the financial sector (PFS) and a growing FinTech sector. Supervision by the Commission de Surveillance du Secteur Financier (CSSF) is complemented by EU-level AML rules and national transpositions, creating a compliance environment where operational practices are expected to align closely with supervisory guidance and the jurisdiction’s market structure.

Typical CSSF focus areas or supervisory expectations

The CSSF places particular emphasis on governance and the demonstrable effectiveness of controls. Supervisory scrutiny commonly focuses on documented risk assessments, the adequacy of internal policies and procedures, board‑level oversight, and the ability to evidence that suspicious transaction reporting and follow‑up are timely and risk‑driven. For cross‑border fund structures and PSFs, the CSSF also expects clarity on responsibilities, escalation routes, and the management of third‑party or group arrangements.

Practical implications for in scope institutions

Luxembourg regulated entities should ensure that governance arrangements explicitly allocate AML/CFT responsibilities at board and senior management levels and that those roles are reflected in documentation and decision‑making records. Risk assessments must be tailored to the entity’s business model – whether banking, fund management, PSF or FinTech – and linked to transaction monitoring, STR triage and escalation protocols. Where FIU intelligence or international cooperation is relevant, institutions should be able to demonstrate timely information flows to competent authorities and internal coordination with compliance, legal and business units. Record retention, audit trails and management reporting are expected to support supervisory reviews and internal audits.

Conclusion – moving from compliance to demonstrable outcomes

Europe II MERs illustrate a familiar but critical lesson: legal and institutional frameworks create the potential for effectiveness, but converting potential into outcomes requires resources, operational design, inter-agency commitment and ongoing performance management. Jurisdictions that pair strong FIU independence and resourcing with good STR quality, proactive national and international cooperation, and routine LEA uptake of disseminations perform markedly better. The pragmatic recommendations above provide a pathway: strengthen the FIU’s institutional capacity, improve reporting quality and feedback, embed financial intelligence into investigation workflows, and modernise cooperation practices. Implementing these steps will increase the likelihood that FIU outputs lead to investigations, asset recovery and prosecutions – precisely the results the next round of evaluations will increasingly emphasise.

Dive deeper

• Egmont Group ¦ Europe II Regional Group, Enhancing the efectiveness of the AML/CFT mechanism through a horizontal analysis of Mutual Evaluation Reports, December 2025. ¦ Link