Birgul COTELLI, Ph. D.

ECB's New Governance Guidelines: Why Banks Must Act Now to Address Deep-Rooted Risk Culture Issues The recent 2023 Supervisory Review and Evaluation Process (SREP) results reaffirm the ECB's longstanding concerns regarding governance and risk culture shortcomings in European banks. The newly proposed Guide on governance and risk culture offers deeper insights into these issues, particularly regarding risk culture, remuneration, and the evolving requirements under CRD6. The ECB's conclusion is clear: governance issues stem from deeper behavioural and cultural drivers that need to be addressed. This goes beyond policy and process fixes, signalling that a cultural shift is needed within banks. Sadly, there seems to be an increasing focus on the (useless and outdated) three lines of defence. This is an obstacle to building an effective risk culture in banks. The introduction of a fit and proper framework under CRD6, with a January 2026 compliance deadline, adds urgency. Experience from the UK's SMCR regime suggests that banks should begin preparations early, ensuring clarity in roles and responsibilities across management bodies. Additionally, the ECB's growing emphasis on emerging risks—such as those arising from digitalisation and geopolitical developments—further underscores the need for a forward-looking risk culture. Institutions must be proactive in identifying and managing these risks by aligning internal expertise and accountability. Failure to address these issues in a timely manner could prove costly. With the ECB empowered to use Periodic Penalty Payments for non-compliance, banks that delay governance and culture improvements face increasing financial risks. Now is the time for banks to take these guidelines seriously, assess gaps, and begin addressing the root causes of governance deficiencies. At a loss on where to start? Find help here: https://lnkd.in/enSBa2Xh European Central Bank #riskculture #Europe

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ECB's New Governance Guidelines: Why Banks Must Act Now to Address Deep-Rooted Risk Culture Issues" The recent 2023 Supervisory Review and Evaluation Process (SREP) results reaffirm the ECB's longstanding concerns regarding governance and risk culture shortcomings in European banks. The newly proposed Guide on governance and risk culture offers deeper insights into these issues, particularly regarding risk culture, remuneration, and the evolving requirements under CRD6. The ECB's conclusion is clear: governance issues stem from deeper behavioural and cultural drivers that need to be addressed. This goes beyond policy and process fixes, signalling that a cultural shift is needed within banks. Sadly, there seems to be an increasing focus on the (useless and outdated) three lines of defence. This is an obstacle to building an effective risk culture in banks. The introduction of a fit and proper framework under CRD6, with a January 2026 compliance deadline, adds urgency. Experience from the UK's SMCR regime suggests that banks should begin preparations early, ensuring clarity in roles and responsibilities across management bodies. Additionally, the ECB's growing emphasis on emerging risks—such as those arising from digitalisation and geopolitical developments—further underscores the need for a forward-looking risk culture. Institutions must be proactive in identifying and managing these risks by aligning internal expertise and accountability. Failure to address these issues in a timely manner could prove costly. With the ECB empowered to use Periodic Penalty Payments for non-compliance, banks that delay governance and culture improvements face increasing financial risks. Now is the time for banks to take these guidelines seriously, assess gaps, and begin addressing the root causes of governance deficiencies. At a loss of where to start? Find help here: https://lnkd.in/enSBa2Xh

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On 14 November 2024, the European Banking Authority (EBA) published new guidelines (EBA/GL/2024/14 and EBA/GL/2024/15) on internal policies, procedures, and controls to ensure compliance with EU and national restrictive measures. These guidelines provide much-needed clarity for financial institutions on how to ensure they are meeting their obligations under EU sanctions and restrictive measures. While EU regulations do not explicitly outline how financial institutions should implement these measures, the European Commission's 2021 Opinion emphasized the need for effective due diligence, including screening, risk assessments, multi-level due diligence, and ongoing monitoring to prevent violations. 🔎 Key highlights from the EBA guidelines include: 🔹 Internal Policies & Procedures Financial institutions must establish, implement, and maintain up-to-date policies and procedures to comply with restrictive measures. This is a foundational requirement for effective risk management. 🔹 Clear Governance Structures It’s crucial for institutions to have a robust governance structure where responsibility for compliance is clearly defined and allocated, ensuring accountability at all levels. 🔹 Restrictive Measures Exposure Assessment Institutions must conduct a thorough assessment to understand their exposure to restrictive measures. This assessment will guide the development of tailored controls and ensure resources are aligned with compliance needs. 🔹 Screening & Risk Management for PSPs and CASPs Payment service providers (PSPs) and crypto-asset service providers (CASPs) involved in the transfer of funds or crypto-assets must choose reliable screening systems to meet their obligations under EU sanctions. This includes screening against EU and national restrictive measures and managing risks associated with violations and circumvention. 🔹 Due Diligence & Ongoing Monitoring Institutions should not only verify whether a person or entity is designated under EU sanctions, but also manage risks related to circumvention and non-compliance effectively through ongoing monitoring and proactive management. Link: https://lnkd.in/em-xkm_A Do not hesitate to contact me, if you have any questions. #EBA #FinancialInstitutions #Compliance #Sanctions #RestrictiveMeasures #RiskManagement #DueDiligence #Governance #Legal #Finance #Banks #Emi

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"The Bank for International Settlements is soliciting private-sector financial institutions to participate in Project Agorá, aimed at examining possible tokenization applications in cross-border payments, according to a Tuesday press release." "Working with BIS on Project Agorá are seven central banks. They include the Bank of France, the Bank of Japan, the Bank of Korea, the Bank of Mexico, the Swiss National Bank, the Bank of England and the Federal Reserve Bank of New York." "They seek to understand whether using smart contracts can lead to new settlement processes and facilitate transactions that aren’t possible to complete today, the release said. The New York Federal Reserve Bank joined Project Agorá last month to understand if the tokenization of central or commercial bank funds running on a shared digital ledger could streamline cross-border payments, the agency said in a statement. " So here we are, facing at a recently architected usage of blockchain technology for the benefit of positioning national currencies to move easier, faster than currently done. I suppose Project Agorá searches to solve the problem of interoperability between national currencies and borders that confines them for all of millenia. Will Project Agorá succeed or fail? Time will tell. #tokenizeddeposits #blockchain #internationalcooperation #undiscoveredeconomictool

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Daily Financial Risk Story 3 : Terrorism Financing Edition In 2014, investigators uncovered a vast terrorism financing network that spanned Europe and the Middle East. The network operated through what appeared to be legitimate businesses, including charities and import-export firms. However, these entities were actually funneling millions of dollars to extremist organizations. They masked illegal transfers by using fake invoices and complex financial transactions, making it difficult for authorities to detect the illicit flow of money. These funds moved across borders through a combination of traditional banking systems and informal money transfer channels, complicating efforts to trace them. As a result of the investigation, several key figures were arrested, and governments were pushed to strengthen regulations aimed at preventing terrorism financing. This case highlighted the hidden dangers of seemingly lawful businesses being used as fronts for criminal activities and reinforced the need for global cooperation and stronger financial safeguards. #FraudPrevention #CorporateFraud #FinancialCrime #AccountingScandal #RiskManagement #CorporateGovernance #Transparency #Compliance #Auditing #AML #FinancialCrime #RiskManagement #Compliance #MoneyLaundering #FinancialIntegrity #DueDiligence #AntiMoneyLaundering #TerrorismFinancing #AML #CTF #FinancialCrime #RiskManagement #GlobalSecurity #Compliance #FinancialIntegrity #Regulations

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📢 📝 December 5, 2024. #MiCA #AML. The European Banking Authority (EBA) issued the Explainer on “Preventing money laundering and terrorism financing in the EU’s cryptoassets sector”. 🔍 Key Takeaway: The Explainer provides a list of EBA issued regulatory instruments (i.e. Guidelines) specifying how new AML/CFT rules should be applied at market entry and throughout the life cycle of a CASP, EMT or ART. 🤷‍♂️ The So What? The Explainer is a must-have guide for CASP, EMT, ART and regulators navigating the connection between crypto and AML/CFT, along with the EBA's key contributions in this area. 📩 Do you have any questions? Feel free to reach out via DMs! :) #AdamanoConsulting #Compliance | #Crypto | #MiCA | #Travelrule | #CASP | #ART

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Brouzos' interview with Walter suggest that Swiss Financial Market Supervisory Authority FINMA lacks the mechanisms and power to sanction banks that seriously violate due diligence and compliance, as well as anti-money laundering preventive measures. It is clear from this interview that FINMA doesn't have the tools to intervene at an early stage in the case of a bank that is running a high risk, by not complying with its duty to maintain a healthy and reputable financial market. Source: Jorgos Brouzos, Stefan Walter im Interview. Der neue Finma-Chef will Banken früher bremsen – und härter: «Wir brauchen Bussenkompetenz». 28.10.2024 https://lnkd.in/dy4f9Njn There is an important section about the FINMA and it's "lack of power" and consequences in my book: "The legal process of the international recovery of assets derived from transnational corruption. Legal Analysis of the Swiss offshore financial center practice." (2022). Lets hope that things will change for good! Do you think the reforms will go through?

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Watchdog warns Western Balkan banks are conduits for money laundering. Criminal networks are exploiting banks and other financial institutions across the Western Balkans to move illicit money across borders, says a report by the Global Initiative Against Transnational Organized Crime. "Criminal networks are exploiting financial institutions across the Western Balkans to move illicit money across borders, leveraging regulatory weaknesses and systemic vulnerabilities, according to a new report by the Global Initiative Against Transnational Organized Crime (GI-TOC).  Despite significant efforts to combat illicit finance, such as the implementation of EU anti-money laundering (AML) directives and adherence to Financial Action Task Force (FATF) standards, financial systems in the region remain highly susceptible to exploitation by organised crime groups, according to the report, “Dirty money: Assessing the vulnerability of financial institutions in the Balkans to illicit finance”.  “The paradox of the financial sector is that it acts as both the main channel for illicit finance and the primary system responsible for detecting and preventing it,” the GI-TOC report states.  “On the one hand, financial institutions are intended to serve as the gatekeepers of financial integrity, with robust anti-money laundering and counter-terrorist financing (AML/CFT) standards with which to comply, including customer due diligence procedures, transaction monitoring and reporting suspicious transactions to financial intelligence units (FIUs),” it adds. “On the other hand, there is considerable evidence, including from the Global Initiative Against Transnational Organized Crime (GI-TOC)’s own research in the region and Moneyval reports, that financial institutions are integral to the three-stage process of money laundering: placement, layering and integration.” Banks dominate the region’s financial landscape, but alternative financial service providers – including cryptocurrency exchanges, money transfer services, and foreign exchange offices – are increasingly contributing to the region’s evolving vulnerabilities. Organised crime networks employ a mix of methods to launder proceeds from criminal activities, ranging from real estate transactions to the misuse of bank loans and cryptocurrency. Weak gatekeepers The report sheds light on systemic weaknesses within the banking sector, which remains the most common conduit for large-scale money laundering. Despite their robust AML frameworks, banks often fall prey to insider corruption, regulatory loopholes, and complex criminal schemes. In one case in Tirana, Albania, authorities arrested seven individuals in June 2024 and seized €50mn worth of assets linked to money laundering. The suspects had reportedly secured large, unjustifiable loans from a second-tier bank, which itself acted as a guarantor. These funds were ostensibly earmarked for hydropower projects, but construction never began."

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Some nuggets from the recent EBA & ECB report on payment fraud across Europe: 🔐 SCA has been a force for good and is effective at preventing fraud 💳 card payments have by far the highest fraud rates both in value and volume: 📈 0.031% in H1 2023, increasing from 0.026% in H1 2022 or 7.31 million fraudulent transactions out of a total of 48.77 bn total card payments 📱 credit transfer fraud rate by comparison is significantly lower at 0.003% (or 616k fraudulent transfers out of total of 21.81 bn) 💰 credit transfers are often used for high-value payments (AOV €6485), which means that the average value of of a fraudulent credit transfer is higher for credit transfers vs other types of payments, but still significantly lower than the AOV, at €1835 #payments #fraud #cardpayments #report #openbanking https://lnkd.in/dwFMUKUe

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#ECB first look in the mirror 😉 https://lnkd.in/gqQSWpJU "A culture of effective communication and challenge and diversity should exist at all levels, especially within the management body and its committees, internal control functions and business lines, and with respect to all types of risks. It is essential that the composition of the management body provides it with the diversity of knowledge, skills and experience necessary to ensure its effectiveness, the establishment of a culture of constructive challenge, including a speak-up culture to create a safe environment in which concerns can be raised, and quality of debate, facilitating the decision-making process. At all organisational levels, the decision-making process should benefit from constructive criticism from staff, as well as from the internal control functions." Now apply that to the pig-headed rush to ram through a digital-Euro, replete with huge risks that are ignored! #ECB #digitaleuro

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Over the past two months, the Swiss Federal Council has implemented the twelfth and thirteenth sanctions packages adopted by the European Union on 18 December 2023 and 23 February 2024, respectively. The entities and individuals newly sanctioned with this package were added to the Swiss list of sanctioned entities and individuals on 21 December 2023 and 29 February 2024, while the Ordinance was amended first on 31 January 2024 and then on 1 March 2024, providing new measures and the expansion of the existing ones. The sanction packages impose further restrictions on the financial and service sectors and on the trade sector, including bans on dual-use goods and items that could contribute to the military and technological advancement of the Russian Federation. They also target revenue streams critical to the Russian economy, such as the importation of significant goods. Read the full newsletter about the latest developments of the sanctions regime currently in place in Switzerland here: https://lnkd.in/dMqPG4nk

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🇦🇪The UAE Financial Intelligence Unit Latest Report Exposes Alarming Trends in Trade-Based Money Laundering📊 For More Insights on Combating TBML, Find UAEFIU’s Official Report Here➡️ [https://lnkd.in/gpPz5XtB] #AML #TBML #FinancialCrime #TradeFinance #MoneyLaundering #Compliance #GlobalTrade

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Beneficial ownership in PDFs vs Beneficial ownership data, which is usable and actionable. Data Standards serve as guides for transparency, however more importantly they help identify what data to gather to maximize the benefits of data. Following the launch of the new BODS 🔜

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What is Nostro and Vostro? Nostro and vostro are banking terms used to describe different types of accounts held between banks, primarily for international transactions. A nostro account is one that a bank holds in a foreign country, in that country's currency; essentially, it's "our account with you." For instance, a US bank might have a nostro account in the UK in pounds sterling. Conversely, a vostro account is the opposite — "your account with us." Using the same example, the UK bank would view the same account as a vostro account, meaning an account held by the US bank in the UK. These accounts facilitate smooth cross-border transactions and clearances. What are the advantages and disadvantages of correspondent banking? Correspondent banking relationships refer to an agreement between two financial institutions where one performs services on behalf of the other. This is commonly used to facilitate international financial transactions, where local banks establish relationships with foreign banks to provide services in those countries. Here's a breakdown of the advantages and disadvantages of correspondent banking relationships: Advantages: Access to Foreign Markets Correspondent banking provides local banks with access to foreign financial markets and currency exchange without the need to establish branches overseas....

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2024: Basel AML Index released. Some work to be done in Central and Eastern Europe to get to better rankings. FATF mutual evaluations still weighting in the heaviest (35%) in the methodology statement: https://lnkd.in/gb_r5BuP #aml #baselindex https://lnkd.in/g5Z27qA9

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Finma Conducts Secret Investigation Against Last CS Executives: Did the leadership of the troubled Credit Suisse (CS) deceive authorities and the public in its final days? Switzerland’s financial regulator, Finma, is reportedly investigating this question. At what point was it clear that Credit Suisse (CS) could no longer be saved? This question is of significant importance, not only politically but especially from a legal standpoint. The central issue is whether the bank's top executives misled the public and the regulators in the final stages. According to the «SonntagsZeitung»,  Finma has launched a secret investigation, summoning the last two top executives: CEO Ulrich Körner and Chairman Axel Lehmann. Supplementing the Work of the PUK The investigation is focused on the final 15 months of Credit Suisse, from January 1, 2022, to March 19, 2023, when UBS took over the bank in an emergency weekend deal. This inquiry is running parallel to that of the Parliamentary Investigation Commission (PUK). While the PUK can look into interactions between the bank and government authorities, it does not have the legal authority to investigate what happened within the bank itself. Finma, however, does have the ability to dig deeper into internal operations and can delegate such tasks to law firms. In this case, the firm Wenger Plattner has been tasked with conducting the investigation, according to the «SonntagsZeitung». Examining Leadership and Capital Management Finma’s secret investigation is looking not only at the liquidity situation but also at broader management issues, including how Credit Suisse handled its capital. The investigation is ongoing. In addition to questioning the two former leaders, nearly a dozen current or former employees of UBS and Credit Suisse have reportedly been interviewed so far. #creditsuisse #finmageheimuntersuchung

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Implications for Compliance Officers: Joint Committee of the European Supervisory Authorities 2025 Work Programme The Joint Committee of the European Supervisory Authorities (ESAs) 2025 Work Programme outlines a busy year for financial institutions across the EU. Compliance officers will need to be particularly aware of the following key areas and update their compliance plans accordingly: Digital Operational Resilience (DORA) Full Implementation: DORA comes into full effect in mid-January 2025. Compliance officers must ensure their firms fully comply with all aspects of the regulation, including incident reporting, threat-led penetration testing, and oversight of critical third-party ICT service providers. Supervisory Convergence: The ESAs will focus on supervisory convergence when applying DORA. Compliance officers should stay abreast of any guidance or best practices issued by their respective national competent authority (NCA) and the ESAs to ensure consistency in implementation. Oversight Framework: The ESAs will begin overseeing designated critical third-party ICT service providers. Compliance officers at firms relying on these providers should be prepared for potential scrutiny and ensure their contracts and risk management processes align with DORA requirements. Incident Reporting: New incident reporting requirements will be in place. Compliance officers must establish robust incident reporting mechanisms and ensure timely and accurate reporting to the relevant authorities. Summary link in comments. #ESAs #FinancialRegulation #EUFinance #Compliance #FinancialServices #RiskManagement #ConsumerProtection #FinancialInnovation #DORA #DigitalOperationalResilience #SFDR #SustainableFinance #ESG #PRIIPs #Securitisation #FinancialConglomerates #EFIF #Fintech #Cybersecurity #GreenFinance #DigitalFinance #RegTech #SupTech

Opinion - Managing custody relationships: A guide for central banks, multilateral development banks, and mid-sized asset managers. Three members Treasury Department of the World Bank Akinchan (Aki) Jain, Medha Gupta & Sonia R. Amaya – which manages close to $200 billion in assets - discuss the factors mid-sized asset managers in the public and private sectors should consider in their selection and management of custody relationships.  https://lnkd.in/exrc2gb7

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The ECB has just published its 'Guide on effective risk data aggregation and risk reporting' (https://lnkd.in/eV7FwmdE). While there is limited divergence from the July 2023 consultation paper, it does put greater emphasis on the minimum scope requirements and threatens significant sanctions for non-compliance. It's a timely reminder of the increased regulatory focus on BCBS 239 across European banks. While BCBS 239 was published over a decade ago, there remains limited traction when it comes to Board and Executive focus on Risk Data Aggregation and Risk Reporting (RDARR) capabilities. It is clear from the ECB that this 'laissez faire' attitude will no longer be tolerated as it upscales its supervisory intensity. While many banks have or had BCBS 239 programmes, aligned to their own interpretation of the Principles, it is now incumbent on senior management to take a step back and consider how they align to the seven key areas of the ECB Guide, namely: 1) The role and responsibilities of the Management Body 2) The scope of application of banks' Data Governance Framework, including the identification of in-scope reports 3) Articulation and embedding of roles and responsibilities for data governance 4) The need for enterprise-wide Integrated Data Architecture 5) Implementation of consistent data quality controls across dimensions of data quality 6) The timeliness of internal risk reporting, including capabilities around reporting in times of stress 7) The importance of well-supported implementation programmes. Many banks are currently grappling with the challenges of ESG reporting, including CSRD. It is important that a BCBS 239 lens is put over these reporting processes from day 1. The SSM has been clear that RDARR is a key priority of its supervisory work programme. The implications are clear - the regulator has stepped up its game, and banks will need to do likewise. #bcbs239 #data #datagovernance #ecb #bankingsupervision

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