Preventing and addressing AML/CFT risks of digital finance: The European regulatory and supervisory perspective

Abstract

Digital finance is not a new phenomenon, yet the impact of new technologies in the financial services industry has escalated over the past years. Despite bringing disruption of products and services on both front and back end, its opportunities involve inherent risks. The ones of money laundering and terrorist financing require special attention as they can have an impact on the integrity and stability of the financial markets. This paper focuses on the interlinks between these two worlds from a regulatory and supervisory perspective, based on the recent work developed by the European Banking Authority — that currently holds the statutory objective to prevent the use of the EU's financial system for money laundering and terrorist financing (ML/TF) purposes. For that purpose, this paper analyses: the main opportunities and challenges; the causes of the identified challenges; the role of regulation and supervision in the fight against the ML/TF risks that arise from these emergent business models, services and products, in the European market; and the future of digitalisation.