The Council and Parliament reached a provisional agreement on creating a new European authority for countering money laundering and terrorist financing (AMLA). The goal is to protect EU citizens and the EU’s financial system by boosting the efficiency of the current AML/CFT framework through an integrated mechanism with national supervisors to ensure certain entities comply with the AML/CFT obligations.

AMLA will have supervisory powers over high-risk obliged entities in the financial sector. It will also have a supporting role in non-financial sectors and coordinate with financial intelligence units in member states. The future location of the new agency’s seat is yet to be determined. AMLA will have the authority to supervise up to 40 groups and entities in its first selection of credit and financial institutions that represent a high risk in several member states. The selected obliged entities will be supervised by joint teams led by AMLA that will carry out assessments and inspections.

Additionally, the provisional agreement expands the scope of AMLA’s supervisory database by requesting the Authority establish and maintain a central database of information relevant for the AML/CFT supervisory system. AMLA will have a general board composed of representatives of supervisors and Financial Intelligence Units from all members states as well as an executive board.

Next, the provisional agreement will be presented to member states’ representatives and the European Parliament for approval.

Click here to read the full press release

The European Commission has proposed giving small and medium enterprises (SMEs) the ability to interact with a single Head Office tax authority. The Commission is making this proposal to alleviate the complexity and compliance costs of cross border operations when operating with a permanent establishment in more than one member state. SMEs would have the opportunity to calculate their tax liability based only on the tax rules of the Member State allowing them to file one tax return. 

The proposal contains detailed provisions to streamline the tax process and allow small businesses to grow and develop. If an SME meets the proposed criteria businesses will have the choice to file under a single Head Office and will remain under that same Head Office system for five years. 

Further details of the streamlined tax option as part of a larger SME Relief Package can be found in the full text of the proposal.

On February 8, 2023, the European Commission announced its members for the new mandate of the Platform on Sustainable Finance via a published list. The Platform on Sustainable Finance is an advisory body that is “subject to the Commission’s horizontal rules for expert groups”,[1] and will advise the Commission on the implementation and usability of the EU taxonomy with three leading deliverables, including:

1. “advising on the usability of the EU taxonomy and wider sustainable finance framework
2. advising on the technical screening criteria for the EU taxonomy
3. monitoring capital flows into sustainable investments”

The Platform consists of 28 members, five observers with environmental and sustainable finance expertise reigning from the private sector, seven directly re-appointed permanent members stemming from EU agencies and bodies, nine EU institutions and international organization sitting as observers, and Helena Viñes Fiestas as appointed Chair (inter alia Commissioner of the Spanish Financial Markets Authority and a member of the UN High-Level Expert Group on Net Zero Pledges).

More information on the Platform on Sustainable finance can be found here and on the Platform’s website here.

[1] See, Platform on Sustainable Finance, European Commission, at: https://finance.ec.europa.eu/sustainable-finance/overview-sustainable-finance/platform-sustainable-finance_en#introduction.

On October 26, 2022, the European Commission adopted legislation it anticipates will make euro based instant payments more accessible in the EU through affordable, secure, and uninterrupted processing. The legislation, which is an amendment to the 2012 Regulation on the Single Euro Payments Regulation (SEPA), applies to all citizens and businesses in the EU and EEA countries that hold a bank account. The speed and ease of instant payments “help to significantly improve cash flow, and bring cost savings for businesses, especially for SMEs, including retailers”, with payments processing at anytime within ten seconds. According the press release from the Commission, only 11% of EU euro credit transfers were made using instant payments at the beginning of 2022, and the Commission hopes to increase that percentage through SEPA. The legislation is part of a commitment made through the Commission's 2020 Retail Payments Strategy, to improve instant payments. 

SEPA is comprised of four requirements:

• “Making instant euro payments universally available, with an obligation on EU payment service providers that already offer credit transfers in euro to offer also their instant version within a defined period.
• Making instant euro payments affordable, with an obligation on payment service providers to ensure that the price charged for instant payments in euro does not exceed the price charged for traditional, non-instant credit transfers in euro.
• Increasing trust in instant payments, with an obligation on providers to verify the match between the bank account number (IBAN) and the name of the beneficiary provided by the payer in order to alert the payer of a possible mistake or fraud before the payment is made.
• Removing friction in the processing of instant euro payments while preserving the effectiveness of screening of persons that are subject to EU sanctions, through a procedure whereby payment service providers will verify at least daily their clients against EU sanctions lists, instead of screening all transactions one by one.”

More information on the SEPA legislation is available here.

The European Network of Credit Unions urged the Platform on Sustainable Finance of the European Commission to consider credit unions and the credit union not-for-profit cooperative model to be classified as their own social taxonomy based on the social benefits that credit unions provide to society.

The Platform on Sustainable Finance issued its Final Report on Social Taxonomy wherein it is focused on aligning the structure of a suggested social taxonomy more closely to the existing environmental taxonomy.

In the letter ENCU suggests that credit unions should be designated as their own social taxonomy because their cooperative structure lends itself to different behavior than investor-owned financial institutions and that difference in behavior produces substantial benefits to the world’s millions of credit union members, to non-members, and the economy as a whole.

Access to affordable, reliable and self-sustainable financial services improves lives on many different levels and credit unions work to expand services to people of all income levels. This makes credit unions uniquely positioned to drive how the financial services industry can better foster financial inclusion. Credit unions model places the interests of their members top of mind, prioritizing personable, altruistic service. The “people helping people” philosophy is at the cored of their “DNA” which operates to the social benefit of all.  Financial inclusion and the nexus with sustainable communities is embodied by the credit union cooperative model.

The letter also notes the work of Donore Credit Union in Ireland wherein it has documented the social benefits of its credit union to society.  Their study documents that for every EUR 1 equivalent invested into Donore Credit Union, in the region of EUR 10 of social value was created.  This is an astounding number that could only be accomplished by the unique cooperative model afforded by a credit union.

A copy of the ENCU comment letter can be viewed here.

On February 24, 2022, the European Council adopted its position on a corporate sustainability reporting directive (CSRD), a proposal drafted by the European Commission, that will correspond with the European sustainable finance strategy. The Commission’s proposal is revision of the non-financial reporting directive from 2014, and “will increase a company’s accountability, prevent divergent national standards and ease the transition to a sustainable economy.”

According to the Minister for Economic Affairs, Finance and Recovery, Bruno Le Maire, after prompting from the French Presidency, the adoption is a step towards a European regulatory framework for sustainable finance. He stated that, “…companies with more than 250 employees or listed companies will now have to translate their environmental, social and governance policy into standardised, justified and certified information documents. This means greater transparency for citizens, consumers and investors so that businesses can play their full part in society. This is the end of greenwashing. Today, Europe is setting the rigorous non-financial reference standards of tomorrow, in line with our environmental and social ambitions.”

The proposal includes:

• an extension of the scope to all large companies and companies listed on a regulated market (except listed micro-companies)
• a certification requirement for sustainability reporting
• more detailed and standardised requirements on the information to be published by companies
• improved accessibility of information, by requiring its publication in a dedicated section of company management reports

More information on the Council’s adoption of the CSRD is available here.

The European Council amended the scope of the non-financial reporting directive (NFRD), which was proposed by the European Commission, in order to alleviate overburdensome reporting requirements for listed SMEs, and also giving SMEs time to adapt to the new rules. The objective of Commission’s proposal is intended to focus on deficits within the existing rules related to disclosure of non-financial information which the Commission not only believes will prevent a necessary transition to a sustainable economy, but “…was of insufficient quality and comparability to allow it to be properly taken into account by investors.” The Commission will adopt, by delegated act, a definition of sustainability reporting standards, thereby harmonizing sustainability data. The directive will be adopted subsequent technical advice given by certain European agencies and the European Financial Reporting Advisory Group (EFRAG).

More information on NFRD updates is available here.

Financial education got a boost last month when both the European Commission, and the three European Supervisory Authorities (EBA, ESMA and EIOPA), collectively called the ESAs, published initiatives related to financial competence and financial digitalization education, respectively. On January 11, 2022, the European Commission and the OECD’s International Network on Financial Education published a joint EU/OECD-INFE financial competence framework for adults. This was a continuation of measures that were announced in Action 7 of the 2020 capital markets union action plan. The joint EU/OECD-INFE’s, Financial Competence Framework for Adults in the European Union, “aims to improve individuals' financial skills so that they can make sound decisions regarding their personal finances. It will support the development of public policies, financial literacy programmes and educational materials by Member States, educational institutions and industry. It will also support the exchange of good practices by policy makers and stakeholders in the EU.”

On January 31, 2022 the European Supervisory Authorities (ESAs) published a, Joint ESAs thematic repository of national financial education initiatives on digitalisation - with a specific focus on cybersecurity, scams and fraud, which consists of 127 national initiatives providing consumers with information on how to improve their financial literacy. The repository, focusing on cybersecurity, scams, and fraud, will also be used to prepare a report on financial education that will be published later in 2022. The majority of the initiatives generally pertain to consumers, but also target retail investors, elderly people, students, children/young people, families; or specific groups such as journalists and mass media representatives; as well as social media and influencers “as sources of information and promoters of investment platforms.”

More information on the Financial Competence Framework for Adults can be found here; and information on the Joint ESAs thematic repository can be found here.

On July 20, 2021, the European Commission presented a legislative proposal package to enhance anti-money laundering and countering terrorism financing rules, and create a new EU AML Authority (AMLA) to combat money laundering. The Commission’s goal is to make improvements to the existing EU framework by bettering methods to detect suspicious transactions and activities and address loopholes that criminals use to launder illicit proceeds or finance terrorist activities. The package includes four legislative proposals:

• “ A Regulation establishing a new EU AML/CFT Authority;
• A Regulation on AML/CFT, containing directly-applicable rules, including in the areas of Customer Due Diligence and Beneficial Ownership;
• A sixth Directive on AML/CFT (“AMLD6”), replacing the existing Directive 2015/849/EU (the fourth AML directive as amended by the fifth AML directive), containing provisions that will be transposed into national law, such as rules on national supervisors and Financial Intelligence Units in Member States;
• A revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto-assets (Regulation 2015/847/EU).”

More information on the Commission’s package of legislative proposals is available here.

As innovation in technology increases, so does the demand on individual privacy rights. The European Council has now taken steps to manage the relationship between privacy and new technology “such as Voice over IP, web-based email and messaging services, and techniques for tracking users’ online behavior", by updating the ePrivacy Directive of 2002. On February 10, 2021, “member states agreed on a negotiating mandate for revised rules on the protection of privacy and confidentiality in the use of electronic communications services.”

The Commission’s draft regulation on ePrivacy will not only repeal the current ePrivacy directive, but it will “complement” the GDPR by filling in gaps, for example, including provisions applicable to both natural and legal persons. The Council’s mandate, in short, will apply to electronic communications content transmitted using publicly available services and networks, metadata related to the communication, and machine-to-machine data transmitted via a public network.

More details on the draft ePrivacy mandate and what it covers can be found here.

On May 7, 2020, a “ Communication From the Commission on an Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing” was published in conjunction with the launch of their public consultation requesting feedback on the actions proposed by the Commission to achieve a comprehensive Union policy on preventing money laundering and terrorist financing, and the best way to implement these actions. The Commission’s Action Plan stresses their commitment to combatting both EU and global money laundering and terrorist financing (ML/TF) issues, and the increased instances of criminal activity stemming for the Covid-19 pandemic. The Commission hopes to create a stronger AML/CFT framework and an integrated EU AML/CFT system; and  “intends to implement a comprehensive AML/CFT policy, adapted to the specific threats, risks and vulnerabilities currently facing the EU14 and designed in a manner that can evolve efficiently while taking into account innovation.”

The Action Plan outlines how the Commission plans to carry out their objectives by building on the following six pillars:

• Ensuring the effective implementation of the existing EU AML/CFT framework;
• Establishing an EU single rule book on AML/CFT;
• Bringing about EU level AML/CFT supervision;
• Establishing a support and cooperation mechanism for FIUs;
• Enforcing Union-level criminal law provisions and information exchange;
• Strengthening the international dimension of the EU AML/CFT framework.

WOCCU looks forward to responding to the Commission’s consultation and supporting the consideration of credit unions in the formulation and implementation of their action items addressing ML/TF prevention.

The European Union (EU) Ministers of Finance of the Member States of the EU jointly with the EU Commission have taken decisive action to allow appropriate reaction to the effects on the financial sector due to the COVID-19 crisis. 

The action issued today will ensure the needed flexibility to take all necessary measures for supporting the health and civil protection systems and to protect our economies, including through further discretionary stimulus and coordinated action, designed, as appropriate, to be timely, temporary and targeted, by Member States.

Ministers remain fully committed to the respect of the Stability and Growth Pact but the action today will allow the Commission and the Council to undertake the necessary policy coordination measures within the framework of the Stability and Growth Pact, while departing from the budgetary requirements that would normally apply, in order to tackle the economic consequences of the pandemic.  This is in anticipation of a severe economic downturn expected as a result of the crisis.

WOCCU continues to urge this flexibility in allowing our credit unions to appropriately respond to the crisis.  

The press release of today's action can be viewed here.

ENCU responded to a request for feedback to the European Commission’s public consultation regarding their initiative on improving resilience against the increasing number of cyberattacks. The European Supervisory Authorities (ESA) “advised the Commission to propose targeted improvements to the EU financial regulatory framework to develop a single regulatory and supervisory rulebook” for information communication technology (ICT) operational resilience in the financial sector. The Commission’s objective is to harmonize applicable rules to make the financial sector more secure and resilient through the reduction of compliance and administrative burdens.

In addition to the questionnaire which included questions on several topics including ICT systems and operational resilience, ENCU urged the Commission to consider risk-based and proportional requirements that are tailored to credit unions. Credit unions do not pose the same cybersecurity risks that banks do, and therefore require less stringent requirements in order to support the Commission’s goal to combat cyberattacks. ENCU also requested consideration for non-mandatory guidelines instead of hard rules to address digital operational resilience and cybersecurity issues. Flexibility to apply necessary strategies instead of overburdensome requirements will help alleviate cost and depletion on much needed resources that credit unions rely upon. Finally, ENCU asked that the Commission appoint only one prudential regulator for consistency in enforcement and regulation. A copy of the comment letter can be found here.

The European Network of Credit Unions (ENCU) responded to a request for feedback on the European Commission’s (Commission) action plan on money laundering & terrorism financing. According to the Commission, “Recent money laundering scandals put pressure on the EU to have a close look at the adequacy of the EU anti-money laundering framework.”[1] This initiative by the Commission aims to address areas of needed improvement in the money laundering and terrorism finance EU framework through new proposals. ENCU responded to this request for feedback and emphasized its support for this initiative while urging the Commission to consider “a risk-based approach, proportional requirements, national-level discretion to tailor regulations, and clear guidance to national level regulators on how to apply proportional regulations so that credit unions can continue its mission to improve financial inclusion and provide affordable and necessary services to the underserved European Union community.” ENCU’s comment letter to the Commission can be found here.

[1] See, Roadmap, Context, available at: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12176-Action-Plan-on-anti-money-laundering

The European Commission has opened a public consultation regarding the next stages in their implementation of final Basel III reforms in the EU. The EC aims to use the consultation as a means to shape the next wave of banking regulation proposals for next year. According to the EC, “the Commission services aim to gather stakeholders’ views on specific topics in the areas of credit risk, operational risk, market risk, credit valuation adjustment risk, securities financing transactions as well as in relation to the output floor.” The EC expects the solicited comments will ensure “convergent and consistent supervisory practices across the Union and alleviating the administrative burden.”[1]

WOCCU looks forward to responding to the EC’s questionnaire by the January 3, 2020 deadline, and will ensure that the critical issues that affect credit unions are represented.

[1] Public Consultation: Alignment EU rules on capital requirements to international standards (prudential requirements and market discipline) 

On October 10, 2019, the Council of the EU's Economic and Financial Affairs Council (ECOFIN), met to discuss key issues including anti money laundering matters and reforms. The Economic and Financial Affairs Council is set to adopt conclusions on the implementation of the anti-money laundering (AML) action plan that was presented last December. The Commission, in addressing shortcomings of the current AML policies, is pushing agreed upon reforms including: the 5th revision of the AML directive; new CRD5 capital requirements for banks and the revised European system of financial supervision; enhancing the cooperation and exchange of information between competent authorities; and further harmonizing AML rules by converting the current AML directive into concrete regulations, in addition to giving an EU body specific AML supervisory tasks.

The 5^th directive on AML and terrorist financing compels the identification of third country jurisdictions with strategic deficiencies in the management of anti-money laundering and counterterrorist financing regimes, and that pose significant threats to the EU financial system. Accordingly, Ministers discussed a methodology for constructing this list and plan to release a new draft list in the form of a delegated act. The “Commission non-paper on key elements of a refined methodology for identifying high-risk third countries for AML purposes” can be found here.  WOCCU and ENCU will monitor these issues closely as they move to the process to determine any adverse impact on credit unions.

Last week, Ursula Von der Leyen, the new European Commission President, announced the new term of College of Commissioners. The most notable new Commissioner is Valdis Dombrovskis from Latvia who will serve as one three new Executive Vice-Presidents of the European Commission, as well as coordinate the work on "An Economy That Works For People". He will be the Commissioner for financial services, which is supported by the Dictorate-General for Financial Stability, Financial Services and Capital Markets Union. President-elect Ursula von der Leyen addressed the role of Executive Vice-President Dombrovskis, stating, "We have a unique social market economy. It is the source of our prosperity and social fairness. This is all the more important when we face a twin transition: climate and digital. Valdis Dombrovskis will lead our work to bring together the social and the market in our economy." 

Dombrovskis' key priorities that will impact credit unions in the EU are outlined in President-elect Von der Leyen's Mission Letter, and include: 

• Completing the Banking Union by finalizing the common backstop to the Single Resolution Fund;
• Agreeing on a European Deposit Insurance Scheme;
• Speeding up the work towards a Capital Market Union;
• Improving cross-border investments, improve the supervisory system and better harmonize insolvency and tax proceedings;
• Developing a green financing strategy to direct investment and financing to the transition to a climate-neutral economy;
• Devising a FinTech Strategy to support new digital technologies in the financial system;
• Developing a new private-public fund specializing in initial public offerings for SMEs;
• Developing a comprehensive approach to combat money laundering and the financing of terrorist activities;
• Ensuring a common approach with the Member States on cryptocurrencies; and
• Developing proposals to improve European resilience against sanctions by third countries, and to ensure that EU sanctions are properly enforced.

On August 26, 2019, the European Network of Credit Unions (ENCU) and the World Council of Credit Unions (WOCCU) sent letters to Ukraine's National Commission for the State Regulation of Financial Service Markets regarding the revised Regulations on Mandatory Standards and Requirements Limiting the Risk of Operations with Credit Union Financial Assets, and their relationship to the European Union Capital Requirements Directive (CRD IV). Both ENCU and WOCCU urged the Commission to adopt new regulatory norms and regulations that will help strengthen the credit union system.  If adopted the norms should pave the way for and amendment to the EU-Ukraine's Association Agreement incorporating a CRD-IV exemption for credit unions.  This exemption will bring credit unions in line with numerous other EU countries that provide a similar exemption, all of which will assist credit unions with their operations. 

Comment Letters:
ENCU Comment Letter: Regulations on Mandatory Standards and Requirements Limiting the Risk of Operations with Credit Union Financial Assets and Ukrainian Exemption from EU Basel III Capital Requirements Directive (CRD IV)

WOCCU Comment Letter: Regulations on Mandatory Standards and Requirements Limiting the Risk of Operations with Credit Union Financial Assets and Ukrainian Exemption from EU Basel III Capital Requirements Directive (CRD IV)

ENCU urged the European Commission to avoid duplication and overlap of the implementation of the Distance Marketing of Financial Services Directive, particularly when there are product specific directives or national-level rules governing similar conduct.  ENCU noted that often inconsistencies or additional processes required by competing regulations often lead to additional costs and expenses without any corresponding benefit to consumers. 

The comments came as part of the European Commission’s Evaluation of the EU Rules on Distance Marketing of Financial Services that sets out what information a consumer should receive about a financial service and its provider before conducting a distance contract.

A copy of the comment letter can be viewed here.

WOCCU filed its comment letter to the European Commission's (EC) Public consultation on EU funds in the area of investment, research & innovation, SMEs and single market. noting that credit unions can play a vital role in supporting the economy by providing sources of business credit to local communities and Small and Medium-sized Enterprises (SMEs).  The benefits to a local community from credit union lending can be significant such as through programs like the Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME).

WOCCU urged the consideration of credit union's role in this consultation which is analyzing various programs for consideration of forming the budget for the EU.

A copy of the letter can be found here.

The European Network of Credit Unions submitted its comment letter to the European Commission in response to its Consultative Document:  Fitness Check on Supervisory Reporting.  In its letter ENCU urged the European Commission to reduce regulatory burden by considering the size, complexity, and structure of credit unions when simplifying and streamlining the supervisory reporting requirements.

In particular ENCU recommended that the EC consider the differing rulebooks under which credit unions operate noting that many times those regulations are significantly more stringent than those operating under CRD IV and CRR.  Further, given that credit unions are not-for-profit, member owned institutions run by volunteer boards and volunteer employees, that compliance burdens and costs often fall disproportionately on credit unions.

ENCU urged the EC to tailor any changes with an eye towards easing the compliance burden and reducing any costs associated with such changes.

A copy of the letter can be viewed here.

The European Network of Credit Unions (ENCU) filed its comment letter on the European Commission's Consultative Document on Transparency and Fees in Cross-Border Transactions in the EU.  In its comments ENCU urged the EC to consider the disproportionate impact that the proposed regulations may have on smaller credit unions, noting that it may result in certain under-served markets being alienated.  Further it noted that credit unions, being member owned, not-for profit organizations will always seek the most efficient pricing for their members.

A copy of the letter can be viewed here.

In its letter ENCU stated that national-level legal frameworks for loan secondary markets strike the appropriate balance for the Member State and opposed EU-level intervention.  Further, that such intervention could unduly disadvantage credit unions who are often second-lien creditors.

Regarding new out-of-court “accelerated loan security” mechanisms, ENCU supported carving out consumer loans from this approach but also urged the Commission not to make loans to small businesses subject to this regime.  ENCU argued that small-business owners are typically physical person consumers who are self-employed and have usually either borrowed as a physical person (such as in the case of a sole trader) or have personally guaranteed loans to their small business if they have incorporated the small business as a legal entity, meaning that social equity grounds militating against applying an accelerated loan security instrument to consumer loans also apply to loans made to small businesses.

A copy of the letter can be viewed here.