Cooperation Between Prudential Supervision & AML/CFT Supervision

This has got two dimensions:  The Domestic and International.  BIS, has come out with a detailed paper on international cooperation. 

Considering the jurisdictional diversity in institutional arrangements for allocating prudential and AML/CFT responsibilities and the importance of cooperation between the two supervisory functions regardless of institutional arrangements, for the purpose of these guidelines the supervisory function that is generally responsible for prudential banking supervision is defined as the “prudential supervisor”. Conversely, the supervisory function that is responsible for AML/CFT supervision is defined as the “AML/CFT supervisor”. Authorisation-related procedures of a bank, ongoing supervision and enforcement actions are identified as representative supervisory activities that require supervisory interaction and cooperation between these functions. The guidelines highlight international banking group structures and cross-border activities as an important risk factor. To ensure effectiveness and efficiency, the guidelines suggest that the information exchange and cooperation systems: 

(i) should not lead to a duplication of efforts;

(ii) must not impair either supervisor’s independence; 

(iii) should limit the scope of information exchange to existing information held by either supervisor; and 

(iv) should follow the risk-based approach

Source: BIS(2019)

Prudential and AML/CFT supervisors should establish an effective cooperation mechanism regardless of the institutional setting, as set out in Annex 5 to ensure that ML/FT risks are adequately supervised in the domestic and cross-jurisdictional context for the benefit of the two functions, without unduly duplicating efforts.

Supervisors are expected to adopt practices, from applicable Financial Action Task Force (FATF) Recommendations and the Committee’s principles and guidelines on the role and powers of supervisors (including their powers to impose sanctions) and information exchange to appropriately consider ML/FT risks.

(1) Of the FATF recommendations relevant to supervisors, FATF Recommendation 27 (Powers of supervisors) and FATF Recommendation 40 and its Interpretative Note (Other forms of international cooperation) describe the roles and responsibilities of supervisors, their powers and authorities to enforce AML/CFT requirements that include a range of effective, proportionate and dissuasive sanctions, and the principles of information exchange and international cooperation among different public authorities, including prudential supervisors. Also for AML/CFT supervisors, FATF Recommendation 2 (National cooperation and coordination) is also relevant.

 

(2) Of the Committee’s publications, the following are particularly relevant in the context of considering ML/FT risks in prudential banking supervision:

 

(a) Core principles for effective banking supervision, September 20121

(b) Corporate governance principles for banks, July 20152

(c) Principles for effective supervisory colleges, June 20143

Deficiencies in banks’ AML/CFT systems could have prudential consequences. For example, AML/CFT deficiencies could result in significant regulatory actions or criminal penalties that may lead to reputational damage affecting the bank’s operations such as depositor outflows, loss of counterparties or loss of market access. Additionally failures in AML/CFT may lead to the revocation of a banking license or termination of deposit insurance in some jurisdictions. Supervisors should be aware that such AML/CFT deficiencies could be caused by or indicative of the bank’s wider, overall failures in governance, organisational structure, risk management and compliance.

Information exchange should be created and maintained, to the extent permitted by applicable laws, in order to ensure that prudential supervisors have access to timely and appropriate information gathered during the AML/CFT supervisors' activities that could be relevant to prudential supervisors in considering ML/FT risks. Similarly, prudential supervisors should share with AML/CFT supervisors any information gathered during their supervisory activities that could be relevant to the supervision of AML/CFT obligations and the assessment of ML/FT risks. This information exchange is limited to information that the requesting supervisor needs but does not have, and that the requested supervisor has available.

The cooperation and exchange of information between related functions should occur in conducting activities including, but not limited to: 

(1) Authorisation related procedures of a bank, which includes: licence applications for banks, qualifying holding assessments, and fit and proper tests both at the time of authorisation and on a continuing basis thereafter;

 (2) On-going supervision, including assessment of governance, risk management, and internal control systems of a bank, business model and profitability drivers, operational risks and compliance with AML requirements; and, 

(3) Enforcement actions4 and/or revocation of a banking licence

For AML/CFT systems to be successful, each nation  needs to have well drawn policies and procedures for cooperation in information sharing.

Countries have created collaboration platforms through which data are shared,  for example, in 2017, the Fintel Alliance was created in Australia to combat money laundering, terrorism financing and other serious crime. It consists of a number of member institutions from the government and the private sector – both domestic and international – which work together, sharing and analysing financial intelligence. Its main objectives are to build up the resilience of the financial sector against criminal exploitation and to support law enforcement investigations into serious crime and national security matters. 

In the Netherlands, a joint venture among a number of public entities (DNB, police, prosecutors, tax authority, customs, and data providers such as the Chamber of Commerce and the Land Registry) has been established to share data from different sources and provide access to this large data set to each participant

In India, the FIU-Ind is the data processing agency and Director (Enforcement Directorate ), Department of Revenue under Ministry of Finance  provide the law enforcement mechanism. 

Happy Reading,

Those who read this, also read:

1. The AML/CFT: International Cooperation

2. Public-Private Partnership in AML/CFT & India

3. Financial Intelligence Unit (FIU-Ind)