Banks’ internal governance obligations vis-à-vis money laundering risks emerging from the new technology-enabled means to transfer funds or value (“crypto assets”)
| Date | 06 August 2024 |
| Pages | 43-59 |
| DOI | https://doi.org/10.1108/JMLC-04-2024-0068 |
| Published date | 06 August 2024 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Andrea Minto |
Banks’internal governance
obligations vis-
a-vis money
laundering risks emerging from
the new technology-enabled
means to transfer funds or value
(“crypto assets”)
Andrea Minto
Department of Economics, Ca’Foscari University of Venice, Venice, Italy and
UiS School of Business and Law, University of Stavanger, Stavanger, Norway
Abstract
Purpose –The new technology-enabled means to transfer funds or value via crypto assets have
prompted regulators and supervisors to question the effectiveness of the anti-mo ney laundering (AML)
regulatory framework. This paper aims to examine the recent developme nts of the EU AML legislation
–leading up to the 2021 AML package –focusing in particular on the banks’internal governance
obligations.
Design/methodology/approach –The analysis is based on the legal dogmatic methodology and is
therefore conducted thanks to a criticalexam of the current and upcoming EU policy and legislation, taking
into accountthe relevant literature and case-law.
Findings –The recent regulatory developments, culminating in the AML regulation, are strengthening the
causal links between ML risk assessment–ML risk exposure–ML risk management, via internal governance
procedures. One of the major AML regulatory strategies to react to the new challenges brought up by crypto
assets amounts to a stricter and more demanding AML risk management regime imposed on banks.
Originality/value –The originality of this article lies in the analysis of the causal connection between
money laundering risk identificationand internal governance obligations. In particular, this article examines
how the risk assessment will be shaping the organizational procedures, processes and internal functions
necessaryto manage the money laundering risks.
Keywords EU Anti-Money Laundering Legislation, Money laundering risk, Interna l governance,
Crypto assets, AML policy
Paper type Research paper
© Andrea Minto. Published by Emerald Publishing Limited. This article is published under the
Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and
create derivative works of this article (for both commercial and non-commercial purposes), subject to
full attribution to the original publication and authors. The full terms of this licence may be seen at
http://creativecommons.org/licences/by/4.0/legalcode
This research was financed by 2022 PRIN PNRR research funding granted by the Italian Ministry of
University and Research, project code: 2022 Y4MCWZ, CUP: H53D23011450006, title “Legal uncertainties
surrounding financial innovation and their consequences on the effectiveness of Anti-Money Laundering
policies: coordinating EU reforms with the Italian regulatory and supervisory frameworks”.
Crypto assets
43
Journalof Money Laundering
Control
Vol.27 No. 7, 2024
pp. 43-59
EmeraldPublishing Limited
1368-5201
DOI 10.1108/JMLC-04-2024-0068
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
1. Introduction
In recent years, policymakers, legislatorsand supervisory authorities have been questioning
the effectiveness of existing capitalmarkets legislation vis-
a-vis the new technology-enabled
means to transfer fundsor value (i.e. crypto assets) [1].
Fifteen years after the advent of bitcoin, crypto assets still remain quite a conundrum
when it comes to their precise legal characterization (Annunziata, 2020;ECB Crypto-Assets
Task Force, 2019). As well known, in fact, for more than a decade scholarship and
jurisprudence alike struggledin defining crypto assets, due to the novelty (and complexity)
of the technology adopted. Crypto asset per se –i.e. observed as a neutral “digital box”–is
but a container of different rights(or value). Consequently, the legal characterization of such
digital box will depend on the actual rights/value it incorporates and the function it
ultimately performs. As a result, crypto assets are to be examined on a case-by-case basis,
focusing on the “inside”of such digital asset. The taxonomy thus remains firmly anchored
to what the rights/value are, irrespective- in principle –of how the technology enables such
rights to be transferred.
Such assessment brings about material legal consequences, in that the qualification
of the crypto asset may, or may not, trigger a specificfinancial market licensing regime.
In case a crypto asset incorporates for instance the rights of a share(presenting equity
claims on the issuer, e.g. voting rights, dividends, [...]) and therefore qualifies as a
financial instrument –or rather “transferable security”within the meaning of Directive
2014 / 65/EU –“MiFID 2”[2] –consequently the business service/activity associated
with it might amount to an investment service/activity,thus coming within the scope of
application of the MiFID legislation [3]. Differently, should the token qualify as
‘electronic money’, it will therefore fall within the scope of Directive 2009 / 110/EC (the
institution is required to carry out activities involving electronic money pursuant to
Title II of the EMD2, unless a limited network exemption applies in accordance with
Article 9 of that Directive [4]. Furthermore, since such tokens qualify as “electronic
money”for the purposes of the EMD2, they in turn come within the definition of “funds”
potentially triggering the licensing regime provided for payment services.
However, other crypto assets present features that made them escape the existing
regulatory frameworks, with the risk that each member state could adopt –as it was the
case, indeed! –different regulatory and supervisory approaches, opening up venues for
regulatory arbitrageand moral hazard (Minto et al.,2021).
Indeed, up till 2023, there was no harmonized bespoke regimefor crypto assets at the EU
level –setting aside the specific rules introduced by the anti-money laundering regulatory
framework, which will be discussed in the next paragraph –thus further exacerbating the
risks of regulatoryfragmentation to the detriment of the end financial users.
In this context, Regulation (EU) 1114 / 2023 –the Markets in Crypto Assets Regulation,
hereinafter also referredto as “MiCAR”–aims to minimizesuch regulatory and supervisory
fragmentation by setting out a regime that“fills-in the gaps”,[5] regulating the crypto assets
that are not already covered by existing EU regulatory frameworks (except for e-money
tokens, which are a type of crypto assets that seem to justify a two-tier regime EMD2-
MiCAR, due to their nature and by reason of the underlying technology) [6]. In this
perspective, the MICAR provides for two major substantive sets of rules: one concerning
with the issuance, offering and admission to trading of crypto assets, and the other
introducing a regimefor the provision of services related to crypto assets.
JMLC
27,7
44
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