Europe's Banking Watchdog Warns on Wave of Dirty Money (FT)
Last Modified: 12:00 AM, Tue Jun 11, 2019

Caroline Binham and Martin Arnold in London 11 June 2019

Extra powers not enough to solve the problem, says EBA’s new head

New powers given to Europe’s banking watchdog are not enough to stem the tide of dirty money sweeping through the bloc that has been revealed by recent scandals, the head of the European Banking Authority said.

In his first interview as chief executive, José Manuel Campa told the Financial Times that the mandate handed to the EBA this year in the wake of Danske Bank’s €200bn money-laundering scandal was a narrow, co-ordinating role rather than one that will ensure even defences across the EU against ill-gotten gains.

“There have been cases of money laundering in Europe, yes in some cases pretty sizeable ones. I’m not saying we have a good system,” Mr Campa said at the EBA’s new Paris headquarters.

“But . . . I don’t think the mandate that the EBA has received is the mandate that will solve that problem,” he said. “It is not a mandate to harmonise AML [anti-money laundering], either regulation or practices, across the union. Because to start that process you first need legislation.”

Mr Campa took up his post last month at a crucial time for the EBA, which has a regulatory role over national authorities, ensuring that banking rules are implemented in an even way across the EU. He arrives as the agency’s credibility has been severely dented by its approach to the Danske Bank scandal.

The EBA’s board of supervisors — made up of national regulators from across the EU’s 28 member states — voted to close an EBA investigation into failings by the Danish and Estonian regulators, despite draft findings identifying four potential breaches of EU law.

Mr Campa warned against “extrapolating” what that ruling by the EBA’s board of directors might mean about its appetite for tackling money laundering. “Because I think there is a strong record of the EBA coming forward with decisions that have been helpful in constructing the single market.”

The Danske Bank revelations are part of a wave of money-laundering scandals to hit the EU over the past 18 months, laying bare weaknesses in the enforcement of EU rules that require banks to carry out due diligence checks on customers.

In response to the scandal, the European Commission this year centralised anti-money laundering powers at the EBA. But its mandate is limited to collecting, analysing and disseminating information to ensure that national authorities “effectively and consistently supervise the risks of money-laundering and that they co-operate and share information”.

Pointing out that the EBA has been given only 10 staff to carry out its new work on AML, he said: “We need to be prudent on the expectations of the mandate the EBA has on AML. It has been an evolutionary situation and we have a mandate to try to co-ordinate the single regulatory framework of AML.”

There have been calls for Europe to establish an entirely new authority to combat money laundering. But Mr Campa said this would first require EU legislation to harmonise the bloc’s AML rules, which leave member states with flexibility on how to interpret directives.

“You need to start with regulation that is homogeneous. We don’t have that. AML as an activity in the EU is regulated by directives. By definition that does not provide a single rule book. If you have a single rule book you can start thinking about a single authority. So maybe the discussion has gone too fast.”

Mr Campa inherits a full in-tray from his predecessor, Andrea Enria — now the head of the eurozone’s banking supervisor at the European Central Bank, one of the EBA’s most influential constituents — not least the move of 195 staff from London to Paris following the Brexit vote.

Edouard Philippe, the French prime minister, is due to open officially the EBA’s headquarters in the Paris business district of La Défense this week in a ceremony that will reinforce the French government’s desire to see Paris benefit from the impact of Brexit on the financial services sector.

The priorities for Mr Campa, a Spanish economist who was a senior executive at Banco Santander, include reforming the EBA’s stress tests of banks’ balance sheets — which have been criticised for being too easy and subject to national regulators’ varying interpretations. He also needs to balance rules for traditional lenders against the arrival of fintech firms and tackle money-laundering.

Special interests and national pride have often appeared to be at the root of the EBA’s problems, as the agency tries to ensure a level playing field across the bloc on issues such as money-laundering and stress tests.

“National regulators are proudly reluctant to be confronted with weak banks that come out of their jurisdictions. They would rather have stronger banks,” Mr Campa said.

Brussels proposed in 2017 that the EBA be equipped with a full-time executive board to ensure “effective, impartial and EU-oriented decisions”, but the move was resisted by national governments.

Mr Campa’s comments were echoed by Olivier Guersent, the European Commission’s director-general for financial stability, who said the governance reforms should be revisited. “The governance issue is that no one really wants their neighbour to look at what they are cooking in their kitchen,” said Mr Guersent said at an FT conference in Paris last week.

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Organization: European Banking Authority, European Commission, Danske Bank AS, European Union, Financial Times
Location: London, Paris, Brussels, France, Europe, Europe
People: Martin Arnold, Caroline Binham
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European banks, EU financial regulation, Global Economy, Money laundering, Banks, World, Financial & markets regulation, Financials, Companies, European companies, Markets, White collar crime, Law, EU financial regulation, EU business regulation