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A planned EU-wide Anti-Money Laundering Authority will help drive up the financial services industry’s compliance with AML rules, but mostly indirectly, through the agency’s scrutiny of national regulators throughout the bloc, European officials said Tuesday.

The European Commission, the EU’s executive branch, unveiled sweeping reforms to enhance the bloc’s defenses against financial crime in July of last year, capped by the new  AMLA, which will begin directly supervising a limited set of large, high-risk financial institutions with cross-border operations in 2026.

Much of the public debate surrounding the AMLA has focused on the methods the new agency will use to select an initial group of 40 financial institutions for direct supervision, which bankers, national governments and the European Parliament have criticized for allegedly placing too much emphasis on large banks.

But Carolin Gardner, head of AML at the European Banking Authority, told attendees of the ACAMS AML and Anti-Financial Crime Conference in Brussels on Tuesday that criticism of the EU’s plans for AMLA to date has disregarded the larger, more pressing issue of how the new agency will coordinate with and monitor the bloc’s 57 national AML supervisors.

“There’s a great deal of excitement about direct supervision, but actually, I personally think the biggest difference is going to be made by AMLA’s indirect supervisory powers,” Gardner said. “We have around 160,000 financial institutions in the EU … you can really see that the biggest difference is going to be made by how national supervisors and AMLA work together in the supervision [of institutions not subject to direct AMLA oversight].”

Under the plans, AMLA will have power to intervene and directly supervise institutions when national supervisors fail to address egregious violations in a timely and effective manner. The EU’s 27 national governments will meanwhile have the option of petitioning the new agency with addressing non-compliance by institutions in their respective jurisdictions.

AMLA will also regularly monitor national supervision of financial institutions and certain non-financial businesses, including corporate services providers, accountants and precious metal dealers, and assess whether the agencies tasked with that oversight have the legal powers and resources necessary to do their job effectively.

“The extent to which AMLA can exercise its indirect supervisory powers and can even enforce, if necessary, against the competent authorities that don’t play ball will be really key in determining how effective the machine will ultimately be,” Gardner said.

The planned agency will conduct onsite examinations of directly supervised institutions jointly with national regulators, and have authority to impose fines the higher of €10 million or 10 percent of a company’s annual turnover.

Jo Swyngedouw, head of financial stability, AML supervision and banking prudential policy at the National Bank of Belgium, said Tuesday that AMLA may face an even larger challenge in untangling and improving the “completely fragmented” EU supervisory landscape for attorneys, notaries and other non-financial businesses and professions.

“I think we should manage expectations of what can be done in the first couple of years,” he said. “The focus will be on the risk assessments … then we can set up a mechanism of interaction with national supervisors.”

Swyngedouw also questioned whether the total headcount of 250 employees foreseen for the new agency will suffice for directly supervising 40 institutions, including large financial groups, as well as for developing the more than two dozen “regulatory technical standards” for implementing the bloc’s AML rules.

The European Commission, Parliament and Council, which represents the EU’s 27 national governments, plan to hammer out the finer points of the broader AML reform package this year, including how AMLA will facilitate data exchanges between each country’s financial intelligence unit and thus strengthen efforts against cross-border illicit finance.

Burkhard Muhl, head of Europol’s European Financial and Economic Crime Center, which helps EU nations coordinate their investigations into transnational crime syndicates, told attendees in Brussels on Tuesday that he wants his agency to lend “analytical support” to AMLA’s mission of improving cooperation between FIUs.

Not all EU officials are on the same page, however.

Raluca Pruna, head of a financial crime unit within the European Commission, said Europol’s involvement should commence at a later stage of a financial crime investigation, after national law enforcement agencies formally identify suspects.

“This information has to be passed to the law enforcement authorities in the member states, and then also to Europol,” Pruna said. “The reform is only adding an additional layer … and AMLA will certainly bring an added value in this respect.”

Contact Koos Couvée at kcouvee@acams.org