Today, financial crime and money laundering pose a threat to the integrity of global financial systems. The establishment of the new EU authority for combating money laundering and terrorist financing (AMLA) in Frankfurt am Main is a milestone for European financial supervision and regulation.
At the same time, and initially less obvious, it is a mission and an opportunity for the financial center Frankfurt to establish itself as a European center for data analysis, the development of AI applications to combat financial crime and the corresponding training, networking and exchange of experts.
This article will look at the necessary prerequisites for this. If Frankfurt seizes its opportunity, the AMLA can realize its regulatory and preventive potential and strengthen AML measures throughout Europe and beyond.
Core of the new AML/CFT Single Rulebook
The AMLA forms the core of the new European AML/CFT Single Rulebook, which essentially pursues three objectives: The harmonization of supervision, the broadening of the scope of application, the strengthening of due diligence obligations for supervised entities in order to effectively manage the risks associated with money laundering and terrorist financing. The AMLA is intended to close a regulatory gap that had previously arisen due to inconsistent enforcement and a lack of cooperation between member states. In particular, cases of cross-border money laundering and the growing role of cryptocurrencies highlight the need for a central authority.
As an EU authority, the AMLA’s reach extends beyond the borders of the EU. As one of the world’s top three anti-money laundering regulators, it has the potential to shape global AML/CFT standards and establish itself as a leading authority on a global scale in the prevention of financial crime. A recent study by the consulting firm EY concludes that this influence represents a unique opportunity for Frankfurt to contribute to the development of global AML principles while reinforcing its status as a pre-eminent financial center. [1]
Improvements in risk management and technical innovations expected
The aforementioned study contains, among other things, the analysis of qualitative interviews conducted with specialists from around 40 traditional banks, neo-banks, payment service providers, insurers, technology companies, state institutions and universities from ten countries. In addition to promoting cooperation between financial institutions, supervisory and law enforcement authorities and greater transparency in ownership and financial transactions to identify beneficial owners (UBOs), the interviewees expect the AMLA to lead to improvements in risk management and technical innovations.
The establishment of the AMLA is intended to improve the coordination and standardization of risk management practices across the entire financial sector. By adopting a risk-based approach, the AMLA could help institutions to better allocate their resources to the areas with the highest risks and improve overall compliance with requirements.
Another key call, as revealed by the study’s interviewees, is the critical role of AMLA in driving technological innovation such as artificial intelligence and machine learning to keep pace with evolving financial crime. Interviewees recommend that institutions prioritize investments in technology to strengthen their AML capabilities and innovative solutions, including real-time cross-border and cross-institutional monitoring. [2]
Coordinated approach in the financial center
A coordinated approach involving politics, research, teaching and industry in Frankfurt and beyond is required to fulfill these reasonable and target-oriented expectations for the AMLA.
The smoothest possible influx of skilled workers to the AMLA is important – and primarily a political task. This includes, for example, streamlined visa procedures for issuing work permits. One proposal is to simplify the application process for residence permits in order to recruit and retain talent more effectively and position Frankfurt as a European hub for combating money laundering.
In addition, the academic sector in Frankfurt and the Rhine-Main region is called upon to develop the financial center into a vibrant anti-money laundering ecosystem driven by advanced technologies and thus help AMLA reach its potential. For example, universities should offer more degree, certification and training programs related to AMLA and the fight against financial crime. In addition, the range of international schools should be expanded to make the AMLA an attractive location for professionals and their families from non-German-speaking countries.
The economy, i.e. companies and organizations, should prepare for the future of combating financial crime, open up to new possibilities – both technical and organizational – and provide the necessary resources. Start-ups in the FinTech sector should have the opportunity in Frankfurt to use so-called regulatory sandboxes to develop and test technologies and business models to combat money laundering and terrorist financing.
Conclusion
Frankfurt is already home to central institutions such as the ECB, Bundesbank, BaFin, EIOPA and more than 200 international financial institutions. This concentration creates a unique supervisory and knowledge ecosystem that can optimally integrate AMLA and, in turn, benefit from AMLA.
On the labor market, there are significant effects in the areas of financial services, technology, law and research. Similar to Brexit-related relocations, the multiplier effect could lead to a threefold to eightfold increase in employment in related sectors with corresponding additional revenue, for example from trade tax.
The opportunity for the financial centre Frankfurt through the establishment of the AMLA is to expand its already established role as a European center for regulation, financial stability and risk assessment and to make additional efforts towards internationalization and technologization, with the aim of becoming one of the world’s leading specialist centers for combating money laundering and terrorist financing.
The successful integration of AMLA into the Frankfurt financial ecosystem could not only set new standards in the fight against financial crime across Europe, but also consolidate Frankfurt’s status as a leading global center for financial supervision, compliance and innovation in the long term.
[1] “Using the new AML requirements for strategic innovation. The role of AMLA.” A study by EY and Frankfurt Main Finance. P.17. Download at: https://frankfurt-main-finance.com/die-neuen-aml-vorgaben-fuer-strategische-innovationen-nutzen/
[2] Ibid. S.5