By Georgios Pavlidis

The new anti-money laundering framework of the European Union promises greater harmonization and stronger supervision. But creating a single rulebook is not the same as creating a single anti-money laundering system.

Anti-money laundering and countering the financing of terrorism (AML/CFT) is an area of European Union (EU) law that has experienced persistent legislative activity. Over more than three decades, successive AML directives have progressively expanded the range of obliged entities and strengthened customer due diligence requirements. They have also increased transparency concerning beneficial ownership and enhanced cooperation between national authorities.

Yet the fundamental architecture of the European AML/CFT system remained largely unchanged. EU rules were implemented, supervised and enforced primarily through national institutions. Differences between Member States in the transposition of directives, supervisory practices and administrative capacity contributed to a regulatory landscape that remained fragmented.

The EU’s new AML package represents the most ambitious attempt yet to change this situation.

At the centre of the AML package is the creation of a European single rulebook through a directly applicable AML Regulation (AMLR), complemented by the Sixth Anti-Money Laundering Directive (AMLD6) and the establishment of the new European Anti-Money Laundering Authority (AMLA). Together with the revised rules on transfers of funds and crypto-assets, these initiatives aim to transform the regulatory and institutional architecture of AML/CFT governance in the European Union.

The objective is clear: to replace excessive regulatory fragmentation with greater consistency, stronger European supervision and more effective cooperation. But an important question remains. Will a single rulebook also create a single AML/CFT system?

From harmonisation to uniformity

The gradual development of European AML/CFT law illustrates both the possibilities and the limitations of harmonisation through directives.

Successive AML directives established increasingly detailed obligations, but their implementation produced national variations and different approaches to supervision, enforcement, and the interpretation of risk-based obligations. The quality and resources of national supervisory authorities and financial intelligence units also varied considerably.

The move towards a directly applicable regulation is therefore significant.

For a large part of the AML/CFT framework, the objective of harmonisation is being replaced by the more ambitious objective of regulatory uniformity. Obliged entities operating across the internal market will increasingly be subject to the same rules concerning customer due diligence, beneficial ownership, reporting obligations and internal controls.

This is an important achievement. Regulatory divergence can increase compliance costs, create opportunities for regulatory arbitrage and weaken the capacity of Member States to respond to financial crime in a coherent and effective manner.

Yet uniform rules do not automatically guarantee uniform outcomes.

Rules must still be interpreted, supervised and enforced. Financial intelligence must be analysed and exchanged. Investigations must be initiated and criminal cases successfully prosecuted, leading to confiscation of criminal proceeds.

However, most of these activities will continue to depend on national institutions. The European single rulebook may therefore reduce legal fragmentation without entirely eliminating institutional and operational fragmentation.

AMLA and the emergence of European AML supervision

The establishment of AMLA is another important innovation of the new framework.

For the first time, the European Union will have a specialised authority at the centre of its AML/CFT supervisory system. AMLA will directly supervise selected obliged entities in the financial sector that meet the criteria laid down in the AMLA Regulation. It will also coordinate national supervisors, promote supervisory convergence and support cooperation between financial intelligence units. This reflects a broader development in European governance. 

However, AMLA will not become a European supervisor for every obliged entity. The overwhelming majority of banks, financial institutions, professional service providers and other obliged entities will remain subject to supervision at national level. The effectiveness of the new system will therefore continue to depend on the interaction between European and national institutions. This creates a complex model of multi-level governance. AMLA must be sufficiently powerful to intervene where serious deficiencies emerge, while simultaneously relying on national authorities. We argue that the success of the new framework ultimately depends less on the formal powers of any single institution than on the quality of cooperation across the system as a whole.

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More compliance or greater effectiveness?

There is also a broader question concerning the objectives of AML/CFT regulation. Over the past decades, the European AML/CFT framework has generated extensive compliance obligations. As a result, financial institutions and other obliged entities invest substantial resources in customer due diligence, transaction monitoring, sanctions screening and suspicious transaction reporting. Moreover, all these mechanisms generate enormous quantities of information.

Nevertheless, more obligations and the production of more information do not necessarily result in better financial intelligence and more successful recovery of criminal assets. The success of the reforms should not be measured simply by the degree of regulatory harmonisation achieved or the volume of suspicious transaction reports submitted. The more difficult question is whether the new framework improves the capacity of European and national authorities to identify significant financial crime and ultimately disrupt criminal financial networks. Greater regulatory uniformity should not become synonymous with mechanical tick-the-box compliance.

A single rulebook is only the beginning

The new European AML/CFT framework represents an important transformation of EU financial crime governance. The directly applicable AML Regulation addresses long-standing concerns about divergent national implementation. AMLA introduces a new European supervisory dimension. Stronger mechanisms for cooperation and information exchange aim to connect institutions that have too often operated within national administrative boundaries. These are the foundations for a more coherent European system. 

But legislation and institutional design can only achieve so much. The central challenge of the coming years will be to transform regulatory uniformity into operational effectiveness. The EU and its Member States must transform that rulebook into a coherent and effective system capable of producing better supervision, better financial intelligence and, ultimately, better results in the fight against money laundering and terrorist financing.

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Georgios Pavlidis holds a UNESCO Chair and a Jean Monnet Chair and is Director of the EU-funded Centre of Excellence AI-2-TRACE-CRIME. He is Associate Professor of International and EU Law at NUP Cyprus. His forthcoming Commentary, The EU Anti-Money Laundering Directive and Regulation, published by Edward Elgar Publishing, provides a detailed article-by-article analysis of the European Union’s new AML/CFT framework and examines its legal, institutional and practical implications for obliged entities, supervisory authorities and the broader system of financial crime governance in the EU.