EBA Finds Gaps in Combating Money Laundering & Terrorist Financing, Despite Significant Progress

The European Banking Authority (EBA) has unveiled the results of its fourth and final round of reviews, examining how competent authorities across 30 EU/EEA member states are tackling the ever-present risks of money laundering and terrorist financing (ML/TF) in the banking sector. With this report, the EBA has completed its comprehensive assessment of the authorities responsible for AML/CFT supervision, offering a detailed snapshot of the progress made—and the work that remains.

Authorities have come a long way since the first round of reviews in 2018. The EBA’s findings point to meaningful steps taken towards implementing a more risk-based approach to AML/CFT supervision. Improvements in areas like cooperation between national authorities and more robust risk assessments are particularly noteworthy, showcasing the positive changes in how supervision is being approached across the EU.

That said, while there has been clear progress, the report also highlights several areas where work is still needed. In particular, the EBA found that many authorities continue to struggle with developing fully effective risk assessment methodologies. Enforcement mechanisms, though improving, are still not delivering the necessary deterrent effect, and there are clear divergences in how prudential supervisors approach ML/TF risks. Moreover, cooperation between authorities remains inconsistent—especially in countries where AML/CFT colleges are absent, and coordination with tax authorities is still lacking.

Despite these ongoing challenges, the EBA remains optimistic. The progress made since the initial reviews is considerable, and these advancements lay a solid foundation for the successful implementation of the EU's new AML/CFT package. The EBA is confident that the actions taken by competent authorities, in response to its previous recommendations, will continue to strengthen the overall supervisory framework, ultimately driving more effective measures against money laundering and terrorist financing.

A More Complex Challenge: Tackling Terrorist Financing

The fight against terrorist financing is an area where the EBA’s findings have a particular focus. While targeted financial sanctions are a crucial tool in freezing assets tied to terrorist organizations, the EBA makes a compelling case for a broader approach. It's not just about catching the big players. Many terrorist cells operate on a much smaller scale, with individuals or groups flying under the radar, escaping the reach of targeted sanctions.

In this context, the EBA stresses the importance of detecting suspicious financial activities early on, even if the individuals involved have not yet been designated under sanctions regimes. Financial institutions need to be proactive, constantly updating their risk assessments to identify emerging terrorist financing risks. The EBA calls for increased vigilance, urging institutions to rely on up-to-date sources, like the EU Terrorism Situation and Trend Report from Europol, to stay ahead of potential threats.

Furthermore, the EBA’s March 2023 update to its guidelines reflects a growing concern about the unintended consequences of derisking, especially in relation to non-profit organizations. In the wake of ineffective counter-terrorist financing controls, some non-profits have found themselves unfairly targeted. To address this, the EBA has worked to clarify the requirements for non-profits, helping them understand what they need to provide to financial institutions to avoid being flagged or blocked.

In addition to these updates, the EBA has also refined its guidance for financial institutions on maintaining robust governance and compliance systems that can adequately address the risks associated with terrorist financing. These guidelines are not just about meeting legal requirements—they're about ensuring that financial institutions are equipped to effectively manage risks in a rapidly changing landscape.

The EBA is set to conduct a final review in 2025 to assess the ongoing actions taken by competent authorities in response to its recommendations. This will provide a comprehensive look at how well AML/CFT supervision has evolved and offer critical insights into the next steps in the fight against money laundering and terrorist financing. As the EBA prepares to hand over its role to the new Anti-Money Laundering Authority (AMLA), this final report will be an important marker in the ongoing efforts to bolster Europe’s financial system against illicit activity.

What’s clear from the EBA’s report is that tackling ML/TF is not a one-person job, nor is it the responsibility of any single member state. Effective cooperation across borders, among financial institutions, regulators, law enforcement, and even tax authorities, is crucial. The EBA has repeatedly emphasized that countering terrorist financing, in particular, is a collaborative effort—and as the world grows more interconnected, so too must the approaches to fighting financial crime. It’s a complex, ongoing challenge, but with the right tools, cooperation, and commitment, it’s one that can be met head-on.

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