New Measures to Mitigate Risks
The European Banking Authority has today issued new guidelines for PSPs and CASPs on the application of the EU restrictive measures regimes. Published on November 14, 2024, the new guidelines also intend to reduce legal, operational and reputational risks for financial institutions, which are caused by internal policy and control system weaknesses.
The EBA clarified that such shortfalls may lead to breaches of EU sanctions, and by implication undermine the efficacy of the latter. These gaps in practice also expose the respective financial institutions to potential litigation and reputational risk-a scenario that could shake the very foundations of the EU financial cosmos.
Why the Guidelines Matter
The guidelines are meant to present a more comprehensive and integrated approach toward policies on restrictive measures within the overall governance and risk management frameworks of financial institutions. According to the EBA, inadequate controls can allow the emergence of avenues for persons or entities to bypass EU regulations with resultant inefficacy of sanctions.
Standardised application of the restrictive measures by PSPs and CASPs bolsters the integrity of the EU’s Financial System. Compliance with these requirements is commensurate, since the requirements enhance the overall objectives set by the Union in hindering money laundering and combating the financing of terrorism.
Crypto Providers Requirements
Under the new regulations, PSPs and CASPs will be obligated to introduce efficient systems of screening that will monitor the processes of fund and crypto transfers effectively. It will be mandatory for the appropriate identification and management of risks linked to breaches of the restrictive measures. The guidelines also demand an introduction of robust policies in place that will avoid bypassing sanctions by the users with the help of PSPs and CASPs.
Service providers are also under obligation to screen transaction data for entities or persons subject to restrictive measures so that no cases of inadvertent facilitation take place. This provides testimony to the commitment of the EU toward closing gaps that might otherwise undermine regulatory compliance.
Legal Context and Timeline
The new EBA guidance follows the legislative package published in 2021 by the European Commission seeking to reform the EU’s Anti-Money Laundering and Countering the Financing of Terrorism frameworks. Among others, that legislative effort included proposals for new rules on fund and crypto transfers.
These regulations were adopted on June 9, 2023, and will come into effect on December 30, 2024. The detailed EBA guidelines for PSPs and CASPs will become binding on December 30, 2025, to give institutions time for changes in their systems and processes.
The objective of the EBA is that this harmonization of compliance requirements will enhance financial integrity while assuring equal treatment of the service providers within the EU.
