Birgul COTELLI, Ph. D.

The old chestnut of effective AML supervision... This week, the Financial Action Task Force (FATF) released its review of the non-financial sector (DNFPBs) and their technical compliance with the FATF recommendations. The majority of FATF member states performed well with a few, unsurprising, exceptions. What the FATF can't judge, at least at the moment, is the effectiveness of supervision in the DNFPB sector. The new round of mutual evaluations, which has already kicked off, will go some way to addressing this with the changes made to the Immediate Outcomes and I suspect that many of us think that a number of countries will perform quite badly when it comes to effectiveness, particularly in the supervision of lawyers and accountants - a topic never far from our hearts at the Centre for Finance and Security (CFS) at RUSI With thanks to the EU Mission to the UK, Maria Nizzero and I held a series of roundtables earlier this year with experts from across the UK and EU to identify common challenges to effective supervision. It was fascinating to see how much common ground there was, despite the variety of supervisory models in place and how core themes such as information sharing, the need for feedback loops, and the balance between incentives and deterrents resonated with all attendees. We've published a report summarising the fascinating discussions. Many thanks to all of those who contributed so brilliantly! https://lnkd.in/eHK7M2sj

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Regulatory Heatmap 2024-2027: Prepare for Future Change The #finserv regulatory landscape continues to evolve. Our updated Regulatory Heatmap provides a detailed overview of new and updated regulations, including the MiFID II/MiFIR Review, ECB Final Guideline (RDARR), CRR 3 FRTB, EU AI Act, and AMLD 6. Acquire strategic insights and take proactive steps to ensure compliance. ✅ Learn more today! https://okt.to/ABoHTL

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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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Banks and financial institutions continue to flood regulators and financial intelligence units with tons of suspicious activity reports/suspicious transactions reports (SARs/STRs) 📚. Here are just a few headlines from recent weeks: 📰 "400 files on suspected financial crimes pile up in Luxembourg due to lack of resources" 📰 "Suspicious transaction reports doubled <in the Netherlands> last year"  📰 "The number of STRs in Lithuania remained close to 100,000 for the second year in a row". Such high numbers of SARs/STRs overload FIUs with technical work, distract them from the important tasks in the fight against FinCrime, and can create noise as to what actually are the most relevant current FinCrime typologies. Is there light at the end of the tunnel? Yes, there is. And we can see it in the UK figures. It is one of the few financial centers in Europe where the number of SARs/STRs is decreasing. What has happened in the UK? A few important things to keep in mind: 👉 The UK government and National Crime Agency (NCA) has set a goal to improve the SAR reporting system 👉 The target has been set to provide more and better feedback to covered entities on their reporting practices. Does this lead to greater regulatory blindness? No, on the contrary, the number of frozen assets is growing at quite a high rate in the UK. At AMLYZE, we are now striving to act positively at both ends, working closely with our clients to help them identify, isolate and ultimately report what is truly suspicious, while at the same time exploring ways to improve the capacity of FIUs to make sense of large numbers of SARs. And we look forward to sharing our achievements in this area with you later this year! #STRs #RegulatoryReporting #AMLYZE

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On 1st May 2024, The Money Laundering Reporting Office #MROS - FIU Switzerland - published its detailed annual report for 2023. The report covers numerous topics and statistical data characterizing the results of the actions taken and the difficulties faced in fighting #moneylaundering. It also focuses on the consequences of legal changes involving the transparency register, introducing goAML, and updating the Anti-Money Laundering Act (AMLA) that helped to make financial transparency and crime detection more effective. Here’s a quick view of the 2023 stats as compared to 2022 and 2021. It reveals a significant rise in the number of Suspicious Activity Reports where MROS handled 11,876 #SARs reports in 2023, marking a 56% increase compared to the previous year. It increased drastically compared to 2022 (7639 SARS) and 2021 (5964 SARS). 90.5 % of SARs were detected in the #bankingsector this year, whereas 92 percent had been detected in 2022. Found maximum engagement with #cryptocurrencies with 14.5% of whole SARs in 2023. On the other hand, this is a small rise of 13.8% from 2022 which is approximately double from 2021 reports with 8.4 %. MROS recorded 696 information responses from 2023 to #Swissauthorities, with a rise of 4.3% from last year's total (667 requests in 2022 ) and (-+540 requests in 2021). Shows the higher collaboration among authorities with maximum information sharing. MROS has 866 cases headed for prosecution authorities. Unlike the previous year of 1232 and 1486 in 2021. The number of instances decreased in 2023, but they were more severe than in previous years.  7.1% rise in the amount of requests for information under Art. 11a AMLA from 2022.  In 2023, MROS boosted its international cooperation by sending 280 information requests to 67 different FIUs which was a 6.9 % increase from 2022. There is a 17.2% decrease in incoming requests, receiving 705 from 92 foreign FIUs. The document focuses on other crucial spheres as well including the use of the risk-based approach and complete progress in #counterterrorismfinancing #AMLcompliance, and #antimoneylaundering systems. You can read the full report here: https://lnkd.in/diwp9Kym #MoneyLaundering #Compliance #MROS #AML #Dirtymoney #AMLWatcher

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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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💡 Finance Watch's 5 recommendations to the #EBA on banks' transition plans In its response to the European Banking Authority (EBA) consultation on the draft guidelines for on the management of #ESGrisks, Finance Watch highlighted specific attention points, including:  🔹 It is important that #CRD-based and #CSDDD-based transition plans share common foundations and be consistent in terms of criteria, methodologies, assumptions and targets, as proposed by the EBA. Considering both plans as distinct exercises would undermine the comparability of the transition plans and result in duplicative efforts for financial institutions. 🔸 CRD-based and CSDDD-based transition plans should still respond to distinct purposes and be designed accordingly. In their design, CSDDD-based transition plans should be seen as a prerequisite for the design of CRD-transition plans. While we understand that not all financial institutions subject to CRD are in scope of CSDDD transition plans, they still need to understand how their business model, their portfolio and their exposures should look to be considered as consistent with the objectives of the Paris Agreement. 🔹 The time horizon for the management of ESG risks should be extended. A 10-year time horizon for strategic planning and managing ESG risks remains insufficient to take into account the transition risk perspective and the necessary transformations that need to happen to meet the objectives of the Paris Agreement. 🔸 Currently, EBA guidelines illustrate that exposures to concerned companies showing a high level of taxonomy-alignment may not be considered material. This leads to the false impression that taxonomy alignment entails the absence of ESG risks. 🔹 GHG emissions should be considered both in absolute and intensity values. GHG intensity, whether based on the enterprise value or the revenue, is not the right metric to measure decarbonisation results. EBA should therefore not give the flexibility for the institutions to use one or the other metric. Read the full response 👇 https://lnkd.in/ebwyNBia

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Tough messages of ESMA on Greenwashing (GW) Some days ago, I commented on the final reports on GW of EBA (European Banking Authority) and EIOPA (European Insurance and Occupational Pensions Authority). These reports are an input to the European Commission (EC) on “GW risks and the supervision of sustainable finance policies”. ESMA – the European Securities and Markets Authority – also issued its report on June 4th, 2024. ESMA is one of three European Supervisory Authorities (“ESA”) set up within the European System of Financial Supervision. https://lnkd.in/d9r6q4as In June 2023, ESMA had published a Progress Report presenting the common ESA’s high-level understanding of GW and mapping areas more exposed to GW risks across the Sustainable Investment Value Chain (SIVC). The Final Report identifies a series of actions for National Competent Authorities (NCAs), ESMA and the EC to enhance supervision across key sectors of the SIVC – issuers, investment managers, investment service providers and benchmarks administrators. The Report describes several key findings: • NCAs have reported only a limited number of actual or potential cases of GW. due to multiple factors: low level of signals (e.g., complaints) reaching NCAs, limited financial literacy, constraints on NCAs’ resources, and NCAs’ difficulties to access good quality data. • Enforcement decisions are, up to now, limited as well. NCAs have favoured a gradual approach, accompanying market players in the implementation of a new, complex regulatory framework. Finally, NCAs face challenges in establishing infringements, where the regulatory framework builds on unclear or ambiguous definitions. • Most NCAs consider that their resources are not sufficient. They have started building sustainability-related capacities and expertise through training programs, recruitments, cooperation with relevant national agencies or dialogue with nongovernmental organizations (NGOs). In my opinion, all this signals that ESMA and NCAs are just at the beginning of their enforcement journey. This is confirmed by a separate communication of ESMA in May 2024, extensively commented by Morning Star. https://lnkd.in/d3pbFR_5 According to this report, nearly two-thirds of European equity funds are forced to adapt their ESG strategies, and ESMA provides a framework for sustainable funds to fight GW. ESMA will require funds that claim to be ESG compliant to have at least 80% of assets under management that meet ESG criteria. ESMA states that in recent years, asset management companies have misused the terms "sustainable" in an abusive way. Asset managers will only have a few months to comply with ESMA's guidelines on the designation of "sustainable" funds. According to Morningstar, 1,600 funds will have to exclude assets from their portfolios. #esg @ESMA #ESA #consumerprotection #greenwashing

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Today the ESM - European Stability Mechanism will host the CEBRA conference on “The Role of Central Banks and International Financial Institutions in the Transition towards a Low-Carbon Economy." In opening the conference, co-organized with the Central Bank Research Association (CEBRA), University of Luxembourg and the Banque centrale du Luxembourg (BCL), I will make three points: 1️⃣ Need to Address Climate Risks: Highlighting the economic necessity of transitioning to a low-carbon economy addressing the long-term physical impacts, short-term risks, and transition risks associated with climate change. 2️⃣ Role of Financial Institutions: Discussing how central banks and international financial institutions are integrating climate considerations into their policies and operations to mitigate climate risks and ensure financial stability. 3️⃣ Call to Action: Urging collaboration across borders and sectors to develop innovative solutions and proactive strategies for managing climate risks and fostering a sustainable future You can find the full programme here 👉 https://lnkd.in/erkhrsBy ESM - European Stability Mechanism, as European crisis resolution mechanism, contributes to the adaption of the global financial safety to climate-related crisis risks. #climatechange #ESMeuro

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I was invited to speak with Thomson Reuters and you’ll see the attached article in the post below. I hope you find it helpful!

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The Financial Intelligence Analysis Unit (FIAU) released its 2023 Annual Report, documenting important successes, strategic goals, and ongoing efforts to protect Malta's financial system against money laundering and terrorism funding. Take a look at our article 👇 https://lnkd.in/d74iH2Me #FIAU #AML #BDOMalta

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🇨🇭 The Swiss Money Laundering Reporting Office (MROS) recently compiled its 2023 findings on Suspicious Activity Reports (SARs). 💡 Here’s a snapshot of the 2023 numbers compared to 2022 and 2021. - Virtual assets featured in 14.5% of 2023’s received SARS.  - While this is a slight increase from 2022’s 13.8%, it is nearly double 2021’s 8.4%. - 11 876 SARs were reported: that’s about 47 a day. - A giant increase compared to 2022 (7639 SARS) and 2021 (5964 SARS). - 90.5% of these SARs came from the banking sector compared to 92% in 2022. - MROS sent 866 cases to prosecution authorities. Compared to the previous year (1232) and 1486 in 2021. - While there was a decrease compared to the earlier years, 2023’s cases were more extensive. - MROS received 696 information requests from other Swiss authorities, an increase of 4.3% compared to 2022 (667 requests) and 2021 (+-540 requests).  - Meaning information exchange between authorities is increasing. - Information requests under Art.11a AMLA have also increased by 7.1%. ☑️ The MROS report suggests that financial intermediaries understand the distinctions between reporting systems, such as those regarding sanctions and money laundering. 💪 Moreover, the increase in numbers is not bad news; they could indicate:  - An increased AML awareness from financial institutions,  - Better analysis tools for transaction monitoring. 📄 See the full report below.

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