Explanatory Memorandum to COM(2013)44 - Information accompanying transfers of funds - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2013)44 - Information accompanying transfers of funds. |
|---|---|
| source | COM(2013)44  |
| date | 05-02-2013 |
The purpose of this proposal is to revise Regulation (EC) No 1781/2006 on information on the payer accompanying transfers of funds[1] (hereinafter referred to as the 'Funds Transfers Regulation') in ways which improve traceability of payments and ensure that the EU framework remains fully compliant with international standards.
The Funds Transfers Regulation lays down rules for payment service providers to send information on the payer throughout the payment chain for the purposes of prevention, investigation and detection of money laundering and terrorist financing.
The Regulation was to a large extent based on Special Recommendation VII on wire transfers adopted by the Financial Action Task Force[2] (FATF) and aims to ensure that this international standard is transposed uniformly through the Union and, in particular, that there is no discrimination between national payments within a Member State and cross-border payments between Member States.
Against the background of the changing nature of money laundering and terrorist financing threats, facilitated by a constant evolution of technology and means at the disposal of criminals, the FATF has undertaken a fundamental review of the international standards, which culminated in the adoption of a new set of Recommendations in February 2012.
In parallel to this process, the European Commission has also been undertaking its own review of the EU framework. This review has comprised an external study published by the Commission on the application of the Funds Transfers Regulation, extensive contacts and consultations with private stakeholders and civil society organisations, as well as with representatives of EU Member State regulatory and supervisory authorities.
The implications of this work are that the EU framework, including the Funds Transfers Regulation, will need to evolve and adjust to changes which should see an increased focus placed on (a) the effectiveness of regimes to counter money laundering and terrorist financing, (b) greater clarity and consistency of the rules across Member States, and (c) a broadened scope designed to address new threats and vulnerabilities.
Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing[3] (hereinafter referred to as the 'Third AML Directive') sets out the framework designed to protect the soundness, integrity and stability of credit and financial institutions and confidence in the financial system as a whole, against the risks of money laundering and terrorist financing.
Directive 2006/70/EC i (the 'implementing Directive') lays down implementing measures for the Third AML Directive as regards the definition of politically exposed persons and the technical criteria for simplified customer due diligence procedures and for exemption on grounds of a financial activity conducted on an occasional or very limited basis.
The Funds Transfers Regulation complements those measures by ensuring that basic information on the payer of transfers of funds is immediately available to appropriate law enforcement and/or prosecutorial authorities to assist them in detecting, investigating, prosecuting terrorists or other criminals and tracing the assets of terrorists.
The proposal is consistent with and complements the Proposal for a Directive of the European Parliament and the Council on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. These two legislative instruments pursue the common objective of revising the existing anti-money laundering and counter terrorist financing EU framework in order to improve its effectiveness while ensuring its compliance with international standards.
The proposal is also consistent with the objectives of the EU's Internal Security Strategy[5], which identifies the most urgent challenges to EU security in the years to come and proposes five strategic objectives and specific actions for 2011-2014 to help make the EU more secure. This includes tackling money laundering and preventing terrorism, in particular, by updating the EU framework with a view to enhancing the transparency of information on beneficial ownership of legal persons.
With regard to data protection, the proposed clarifications on the processing of personal data are in line with the approach set out in the Commission's recent data protection proposals[6].
With regard to sanctions, the proposal to introduce a set of minimum principle-based rules to strengthen administrative sanctions and measures is consistent with the Commission's policy as outlined in its Communication 'Reinforcing sanctioning regimes in the financial services sector'[7].
Contents
- RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS
- LEGAL ELEMENTS OF THE PROPOSAL
- BUDGETARY IMPLICATION
- Grounds for and objectives of the proposal
- General context
- Existing provisions in this area
- Consistency with other policies and objectives of the Union
- Consultation of interested parties
- Use of expertise
- Impact assessment
- Legal basis
- Subsidiarity and proportionality
- 5. ADDITIONAL INFORMATION
- European Economic Area
In April 2012, the Commission adopted a report on the application of Directive 2005/60/EC and solicited comments from all stakeholders[8]. The annex to this report, in particular, focused on cross-border wire transfers and, namely, on the two new requirements of including beneficiary information in wire transfers, and taking freezing action with respect to UN Resolutions.
The Commission received only 4 contributions referring expressly to the annex to the report. Respondents were asking for a consultation of interested parties from all countries and territories affected by the Funds Transfers Regulation, highlighting the need that any additional requirement or obligation imposed on payment service providers would be proportionate and straightforward to meet.
Extensive consultations with interested parties have been undertaken in the context of the external consultants' study[9] carried out on behalf of the European Commission, which approached 108 stakeholders and involved phone interviews and the completion of a structured questionnaire.
Over the course of 2012, a study by external consultants was carried out on behalf of the Commission to gather evidence about how the Funds Transfers Regulation is working in Member States and the problems which have arisen[10].
The study, in particular, provides a number of recommendations, including:
– introduce the obligation for Payment Service Providers to ensure that all originator and beneficiary information is retained with wire transfers;
– define what beneficiary information needs to be verified, and by whom;
– consider introducing a “simplified” regime for cross-border wire transfers amounting to EUR 1 000 or less, unless there is suspicion of money-laundering or terrorist financing;
– further clarify the reporting obligations for Payment Service Providers;
– explicitly prohibit the execution of wire transfers if it does not comply with the necessary requirements (completeness and accuracy of the information);
– beneficiary Payment Service Providers to implement effective risk-based policies and procedures to determine appropriate follow-up actions;
– consider data protection implications.
This proposal is accompanied by an impact assessment which identifies the main problems in the current EU anti-money laundering/combating terrorist financing legislative framework[11]: (i) inconsistency with the recently revised international standards; (ii) different interpretation of rules across Member States; and (iii) inadequacies and loopholes with respect to the new money laundering and terrorist financing risks. As a consequence, the effectiveness of counter money laundering and terrorist financing regimes is reduced with a negative reputational, economic and financial impact.
The impact assessment analyses the following three scenarios:
a base-line scenario that the Commission takes no action;
an adjustment scenario that entails limited changes to the Funds Transfers Regulation necessary to either (i) align the legislative text to the revised international standards, or (ii) to ensure a sufficient level of consistency between national rules, or (iii) to address the most important shortcomings concerning the new emerging threats; and
a full harmonisation scenario that entails major policy changes and additional elements of harmonisation, in recognition of any EU specificities.
The analysis carried out in the impact assessment has demonstrated that the second scenario is the most balanced in aligning the Funds Transfers Regulation with the revised international standards while ensuring sufficient level of consistency between national rules and flexibility in their implementation.
In addition, the impact assessment analysed the impact of the legislative proposals on the Fundamental Rights. In line with the Charter of Fundamental rights, the proposals seek in particular to ensure protection of personal data (Article 8 of the Charter) as regards the storage and transfer of personal data.
Article 114 of the Treaty on the Functioning of the European Union.
There is a general consensus, emanating from all stakeholders (in particular Member States and the payment industry), that the objectives of the proposal cannot be sufficiently achieved by the Member States and would be better attained by EU action.
Non-coordinated action by Member States alone in the field of cross-border transfers of funds could significantly impact on the smooth functioning of payment systems at EU level, and therefore damage the internal market in the field of financial services (see Recital 2 of the Funds Transfers Regulation).
By the scale of its action, the Union shall guarantee a uniform transposition of new FATF Recommendation 16 through the EU, and, in particular, that there is no discrimination between national payments within a Member State and cross-border payments between Member States.
The proposal therefore complies with the subsidiarity principle.
With regard to the proportionality principle, in conformity with the analysis carried out in the impact assessment the proposal transposes the revised FATF Recommendation on 'wire transfers' by introducing the minimum requirements essential to ensure the traceability of transfers of funds without going beyond what is necessary to achieve its objectives.
This proposal has no impact on the Union budget.
Detailed explanation of the proposal
In line with new FATF Recommendation 16 on 'wire transfers' and the accompanying Interpretative note, the proposed changes are aimed at addressing areas where gaps in transparency still remain.
The intention is to enhance traceability by imposing the following main requirements:
– include information on the payee;
– with regard to the scope of the Regulation, clarify that credit or debit cards, or mobile telephone or any other digital or IT device become subject to the provisions of the regulation if they are used to transfer funds person to person. In addition, clarify that below EUR 1 000, in the case of fund transfers outside the EU, a lighter regime of non-verified information on the payer and the payee applies (as opposed to possible exemptions from scope as in Regulation (EC) No 1781/2006);
– with regard to obligations of the Payment Service Provider (PSP) of the payee, imposing a requirement to verify the identity of the beneficiary (where not previously identified) for payments originating outside the EU and where the amount is more than EUR 1 000. With regard to the PSP of the payee and the intermediary PSP, an obligation to establish risk-based procedures for determining when to execute, reject or suspend a transfer of funds which lacks the required information and to determine appropriate follow-up action;
– with regard to data protection, align the requirements of record keeping of the information with the FATF standards, in accordance with the new regime foreseen by the Directive [xxxx/yyyy];
– with regard to sanctions, reinforcement of sanctioning powers for competent authorities and a requirement to coordinate actions when dealing with cross-border cases; a requirement for sanctions imposed for breaches to be published; and a requirement to establish effective mechanisms to encourage reporting of breaches of the provisions of the Regulation.
The proposed act concerns an EEA matter and should therefore extend to the European Economic Area.