Who are Europe's Payment Sector Financial Crime Regulators?

As the adage goes, “Money makes the world go round,” and in this digital age, it’s the payments industry that ensures it. Innovation in the payments landscape has brought about huge benefits for consumers - less friction, greater flexibility and almost real-time account balances.  

Unfortunately, with new channels for criminals to exploit, the growth in digital payments has also ushered in a new era of financial crime risks. The threats are evolving, and the stakes are higher than ever.  

European bodies are taking steps combat financial crime by ensuring payment processors in Europe meet strict anti-money laundering (AML) regulations. Regulators have been swift to penalise non-compliant entities, leveraging fines, sanctions and licence revocations. These fines can reach tens of millions and even higher in some instances. These actions send a clear message to the industry that financial crime will not be tolerated, and that compliance is not optional.  

Our guide sheds light on pivotal European regulatory bodies and their payment and AML regulations in Europe: the UK Financial Conduct Authority (FCA), European Securities and Markets Authority (ESMA), and European Banking Authority (EBA).

‍

The UK's Financial Conduct Authority (FCA) assumes a pivotal role in upholding the integrity and security of the country's financial landscape. With a primary focus on the payments sector, the FCA actively investigates and addresses the escalating threats posed by financial crime. In a "Dear CEO" letter, the FCA pinpointed anti-money laundering (AML) and fraud as critical areas for payments firms, underscoring deficiencies in financial systems and controls. Emphasizing continuous vigilance, FCA AML regulations ask payments firms to consistently review their fraud prevention systems and ensure the effectiveness of their AML measures. The FCA recently highlighted a shortage of Suspicious Activity Reports (SARs) submitted by UK's payment and e-money firms. The FCA's stringent oversight and proactive engagement underscore its commitment to safeguarding the financial sector, ensuring robust AML guidelines and fostering a secure environment for financial transactions in the UK.

The European Securities and Markets Authority (ESMA), acting as a crucial pan-European regulatory authority, plays a key role in bolstering the continent's financial landscape amid the growing threat of financial crime within the payments sector. In response to heightened risks, ESMA actively investigates the sector, proposing specific provisions to be incorporated into the Payment Services Directive 2 (PSD2) and E-Money Directive 2 (EMD2). These provisions empower the withdrawal of authorization for entities found in breach of anti-money laundering (AML) and countering the financing of terrorism (CFT) standards. ESMA's collaborative approach extends beyond national borders, aligning its efforts with UK national authorities, creating a unified front against financial crime. This coordinated strategy not only enhances regulatory consistency but also strengthens the resilience of cross-border payments, demonstrating ESMA's dedication to fostering a secure and interconnected financial environment across Europe.

The European Banking Authority (EBA) plays a crucial role in maintaining the stability and integrity of the European financial system. With a specific focus on the payments sector, the EBA's responsibilities include conducting in-depth assessments of money laundering and terrorist financing risks associated with payment institutions. The June 2023 report by the EBA delves deep into these risks, revealing substantial inherent exposure and identifying notable weaknesses. These weaknesses encompass a lack of risk awareness, insufficient transaction monitoring and reporting, and weak governance structures within payment institutions. The EBA's findings indicate that the implementation of anti-money laundering and countering the financing of terrorism (AML/CFT) measures in the payment institutions sector is perceived as less robust compared to the banking sector. As a result, the EBA AML guidelines work actively to raise awareness, offer insights, and advocate for enhanced AML/CFT frameworks to fortify the payment sector against financial crime risks within the European landscape.

Navigating the intricacies of financial regulations in Europe's payments sector demands attention to key guidance from authoritative bodies. The counsel provided by the UK's Financial Conduct Authority (FCA), European Securities and Markets Authority (ESMA), and European Banking Authority (EBA) underscores the critical importance of staying well-informed and in compliance for payments institutions. Diligently monitoring updates and revisions issued by these entities is essential for adeptly navigating the evolving regulatory landscape.

‍

Download Napier AI’s whitepaper ‘Three Steps for Payments Institutions to Streamline and Monetise Financial Crime Compliance’ to learn how to future-proof financial crime compliance and address regulatory demands.