Latest news with #EBA
Coin Geek
14 hours ago
- Business
- Coin Geek
EU sees 'crypto,' AI as risks for money laundering, terrorism
Getting your Trinity Audio player ready... The European Union's (EU) top standards-setting body for the banking sector gave its updated opinion on money laundering and terrorism financing risks, warning that digital assets remain a high-risk sector while abuse of artificial intelligence (AI) is increasing. On July 28, the European Banking Authority (EBA), the EU agency tasked with implementing rules to regulate and supervise banking across the 27-nation bloc, published its 2025 Opinion on the money laundering and terrorist financing (ML/TF) risks affecting the EU's financial sector. In it, the EBA noted a 2.5-fold increase in authorized crypto-asset service providers (CASPs) between 2022 and 2024, and that many of these CASPs 'lack effective AML/CFT systems, and some attempt to bypass regulatory oversight.' The agency also underscored the growing risk of fraud by AI, with criminals increasingly using AI to automate laundering schemes, forge documents, and evade detection. The EBA voiced concerns that financial institutions 'struggle to keep pace with these sophisticated threats,' and emphasized the need for responsible AI use and robust monitoring. 'Since the EBA's fourth Opinion on ML/TF risks was published in 2023, the financial sector has faced a dynamic and increasingly complex ML/TF risk landscape,' said the report. 'The rapid evolution of financial technologies and new financial products such as crypto assets, and the growing interconnection of financial products and services across sectors, have introduced new vulnerabilities.' The 'Opinion Report' was based on data from January 2022 to December 2024, including the responses of 52 anti-money laundering/counter financing of terrorism (AML/CFT) 'competent authorities' (CAs)—the relevant national regulators of EU nations—to a risk assessment questionnaire. The EBA has been issuing opinions on ML/TF risk every two years since 2017. The July 28 report is the fifth and focuses on the risk landscape shaped by rapid technological innovation, regulatory reform, and shifting criminal behaviors, including FinTech, RegTech, and AI. Unthinking use of regulation technology Regarding RegTech, or regulation technology, the EBA said, on the plus side, that it can 'help streamline workflows, create dynamic risk profiles and enable institutions to manage large data volumes efficiently.' It added that it also 'offers the potential for institutions to share data safely and securely.' The agency's survey found that 29% of CAs identified good RegTech practices. However, half of all CAs surveyed also identified ML/TF risks associated with using RegTech solutions, and 15% considered that the risks had increased. The EBA blamed this unfortunate statistic on the 'unthinking' use of RegTech. Specifically, the three most significant risks were outsourcing, automation without effective monitoring, and lack of in-house skills and experience. Another core area of concern for the EBA was digital assets, with the increased interconnectedness of traditional financial services providers with innovative financial services providers, such as CASPs, being of 'particular concern.' Digital currency risk remains It was the opinion of the EBA that the abuse of digital asset services for financial crime remains a key concern, a problem compounded by a surge in transaction volumes and an increase in the number of authorized CASPs in the EU. 'Between 2022 and 2024, the number of licensed or registered CASPs has multiplied by 2.5 to reach 2,525 at the end of 2024, as has the volume and average value of crypto transactions,' noted the report. As a result, 17% of CAs considered that digital asset-related risks had increased in 2024, compared to the risks identified in 2023, while 7% considered it had decreased—the remaining percentage was split 30% 'still not a risk' and 46% 'risk remains consistent.' Moreover, CAs found that CASPs 'often lacked effective AML/CFT systems and controls,' which the EBA said reflected 'a gap between regulatory expectations, legal obligations and actual practice.' This appears at first look a worrying assessment, however, when considering these stats and comments, it's worth keeping in mind that the full provisions of the EU's Markets in Crypto Asset (MiCA) regulations related to CASPs did not come into force until the end of December 2024. Thus, the changed regulatory landscape of the EU since then may make the following EBA opinion report look quite different. This was not lost on the EBA, which noted that the effective and consistent application of MiCA's 'enhanced supervisory coordination and enforcement' could address the lack of robust AML/CFT controls in the sector. In terms of specific concerns, a major one noted by the report was that CASPs and the providers of other financial services are increasingly interlinked, particularly in the credit institutions, payment institutions, and e-money institutions sectors. 'This means that ML/TF risks affecting CASPs are also spilling over into other sectors,' said the EBA. 'For example, 35% of CAs observed an increasing crossover in services between CASPs and e-money institution (EMIs), and CASPs and PIs [payment institutions] for the conversion of cryptocurrency to fiat currency and vice versa.' Despite concerns about the increasingly intertwined digital currency and legacy finance sectors, other European authorities have sought to calm fears of spillover risk from the tumultuous crypto space. In May 2023, the European Systemic Risk Board (ESRB) declared that 'the crypto market has few interlinkages with the traditional financial sector and the real economy, and none of those links are currently significant.' Meanwhile, in October 2024, the Financial Stability Board (FSB) noted that digital assets 'remain a small portion of global financial assets,' thus, the risk of infection spreading from the sector is low. A potentially more problematic finding in the EBA opinion report was that CAs highlighted a rise in fraud targeting investors in digital assets, notably 'rug pull scams,' where fake tokens lure investors before the creators vanish with the funds. Another concern related to the issuing of digital assets to raise funds, such as unregulated token sales via decentralized platforms, which can also lead to fraud and regulatory breaches. The report also noted that investigations by law enforcement authorities across EU member states showed that digital assets continue to be used as a means of transfer for terrorism financing. However, in a departure from previous opinion reports, the EBA noted that Europol, the EU law enforcement agency, had observed an increasing shift away from the prevalent use of Bitcoins towards the use of stablecoins. This tracks with a June update from the Financial Action Task Force (FATF) that stated 'the use of stablecoins by various illicit actors, including Democratic People's Republic of Korea (DPRK) actors, terrorist financiers, and drug traffickers, has continued to increase since the 2024.' In addressing some of these issues and risks, the EBA underscored the need for strong due diligence, ongoing oversight, and clear regulatory frameworks. In this regards, it noted that the complete MiCA regulatory framework applied from the end of 2024 and introduced four key AML/CFT rules for CASPs: CASPs must be authorized by an EU competent authority; CASPs and issuers of e-money tokens (stablecoins) have to ensure compliance with the EU's AML/CFT rules; issuers must ensure that they, and the sector, are not exposed to serious ML/TF risks and that they don't facilitate financial crime; and CASPs are required to include specific information on the originator and beneficiary of digital asset transfers, to make them more traceable. The EBA has also issued several 'regulatory instruments' to institutions and their supervisors that specify how the new rules should be applied at market entry and throughout the life cycle of a CASP or stablecoin, including guidelines on internal governance arrangements, redemption, ML/TF risk factors, and the authorization process. However, digital assets weren't the only innovative technology under the microscope in the report; AI was also pinpointed as an area of growing concern. Automation and AI fueling increasingly sophisticated schemes According to the EBA, criminals use AI for money laundering to automate financial schemes, conceal fund sources, and make high-risk transactions harder to detect. Perpetrators also abuse AI to generate fake documents, simulate legitimate operations, and use deepfake technologies to evade customer due diligence measures. 'Financial institutions face challenges in detecting sophisticated AI-driven attacks that are increasing in both volume and velocity,' said the report. 'Addressing these threats will require advanced technologies and specialised expertise.' In the credit providers sector, for example, CAs observed a high level of use of falsified ID cards to open new payment accounts and acquire credit, especially with online platforms. 'The scale, diversity and sophistication of fraudulent activities are previously unseen, driven by advancements in automation and AI,' warned the EBA. 'These schemes leverage AI to create highly realistic narratives that incorporate trending societal topics, making them increasingly convincing.' In its opinion, the EBA emphasized the need for responsible AI deployment, supported by robust governance, staff training, and real-time monitoring capabilities. 'Institutions must remain vigilant and adaptive in this evolving threat landscape,' added the agency. General findings and opinions More generally, the EBA noted that 70% of competent authorities reported high or rising ML/TF risks in the financial sector, which they attribute in part to weak AML/CFT controls, as well as poor governance, with firms apparently prioritising growth over compliance. Overall, the opinion of the EBA was that, as things stand, innovative technology in financing represents a net increase in risk: 'While innovation can help make the fight against financial crime more streamlined and effective, the EBA's findings suggest that the sector's drive for innovation and growth may be outpacing its ability to manage ML/TF risks, with firms in the credit institutions, payment institutions and e-money sectors particularly exposed.' When meeting this challenge, the EBA pointed again to its new guidelines, applicable from the end of 2025, which aim to harmonize standards across the EU banking and finance sector. This includes guidance on ML/TF risk assessments, requirements on transfering of funds and certain digital assets (the EU 'travel rule'), and compliance with enhanced customer due diligence provisions related to high-risk third countries. In order for artificial intelligence (AI) to work right within the law and thrive in the face of growing challenges, it needs to integrate an enterprise blockchain system that ensures data input quality and ownership—allowing it to keep data safe while also guaranteeing the immutability of data. Check out CoinGeek's coverage on this emerging tech to learn more why Enterprise blockchain will be the backbone of AI. Watch: Demonstrating the potential of blockchain's fusion with AI title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen="">
Fibre2Fashion
5 days ago
- Business
- Fibre2Fashion
Euro area gains ground externally, IMF cautions on imbalances
The euro area posted a moderately stronger external position in 2024, supported by a rebound in its current account surplus and a rise in its net international investment position (NIIP), according to the IMF's External Sector Report. However, the IMF cautioned that regional imbalances, weak investment in key economies, and structural rigidities could pose challenges to long-term resilience unless addressed through targeted reforms and deeper economic integration. The current account balance increased to 2.8 per cent of GDP in 2024, up from 1.7 per cent in 2023, driven primarily by a fall in energy import prices and a surge in non-energy goods exports. Despite this improvement, the IMF projects the CA surplus will gradually decline to around 2 per cent of GDP in the medium term as domestic demand picks up. The IMF's External Balance Assessment (EBA) estimated a cyclically adjusted current account of 2.9 per cent of GDP, compared to a model-based norm of 1.4 per cent. After accounting for country-specific statistical adjustments—especially for Ireland and The Netherlands—the staff assessed the CA gap at 1 per cent of GDP, within a range of 0.2 to 1.8 per cent. Persistently large surpluses in Germany and The Netherlands were attributed to elevated household and corporate savings and subdued investment levels. The euro area's net international investment position rose significantly, reaching 10.9 per cent of GDP by end-2024—its highest level in over a decade. This was supported not only by the current account surplus but also by valuation effects in the final quarter of the year. Gross external assets and liabilities stood at 250.3 and 249.4 per cent of GDP, respectively. However, underlying asymmetries persist: Germany and other creditor nations continue to hold elevated net external assets, while countries such as Portugal and Spain remain heavily indebted externally. The IMF stated that these debtor countries could face an elevated risk of sudden stops in capital inflows under tighter global financial conditions. Despite a slight appreciation of the CPI-based real effective exchange rate (REER) in 2024—up 0.5 per cent from 2023 levels—the IMF assessed a REER gap of -3.1 per cent, suggesting the euro area currency remained somewhat undervalued based on current account dynamics. This contrasts with the EBA REER index model, which suggests a modest overvaluation. On the capital and financial account side, the euro area recorded a financial account surplus of 3.2 per cent of GDP in 2024, up from 1.9 per cent the previous year. This was largely fuelled by a recovery in net direct investment, offsetting weaker other investment flows. Portfolio investments and derivatives made smaller contributions. The IMF noted that while risks remain manageable overall—especially due to the euro's status as a global reserve currency—large sovereign and bank sector financing needs could amplify vulnerabilities in the face of sustained market volatility or monetary tightening globally. To sustain external stability and reduce internal asymmetries, the IMF recommended a recalibration of domestic demand composition and targeted reforms at both national and EU levels. Strengthening the EU single market through reduced regulatory burdens, streamlined trade processes, enhanced labour mobility, and financial market integration could raise productivity and resilience. Completing the banking and capital markets unions was identified as critical to improving risk sharing and supporting investment, especially in high-debt countries. IMF further advised countries with excessive current account surpluses to stimulate domestic demand and increase investment, while those with weaker external positions should raise public savings and undertake productivity-enhancing reforms. Cautious use of industrial policy, targeted only to correct market failures, and coordinated trade measures promoting transparency and deeper integration through free trade agreements, were also highlighted. Additionally, the IMF encouraged reforms to improve energy security, boost EU-level public investment in essential goods, and mitigate demographic pressures through long-term productivity strategies. Although the euro is free-floating and reserves held by euro area economies remain low by global standards, the IMF concluded that the euro area's aggregate external vulnerabilities are limited. Still, the persistence of historical policy gaps and divergent current account trends within the bloc remain a source of macroeconomic friction that warrants continued monitoring. The euro area's external position strengthened in 2024, driven by a higher current account surplus and NIIP. The IMF highlighted risks from weak investment and regional imbalances, urging reforms to boost domestic demand, complete banking unions, and deepen EU integration. Despite some REER undervaluation, overall vulnerabilities remain limited but uneven across member states. Fibre2Fashion News Desk (HU)
Fibre2Fashion
25-07-2025
- Business
- Fibre2Fashion
UK's external position weakens amid strong pound: IMF
The UK's current account (CA) deficit widened to 2.7 per cent of GDP in 2024, underscoring structural imbalances in its external sector, according to the IMF's External Sector report. The cyclically adjusted CA remained at the same level, implying a negative gap of 2.4 percentage points relative to the External Balance Assessment (EBA) norm of –0.3 per cent. After accounting for domestic policy distortions, IMF estimate a residual gap of –1.7 per cent. The real effective exchange rate (REER) appreciated by 4.2 per cent in 2024 compared to 2023 and is now 10 per cent stronger than its pre pandemic average, eroding price competitiveness. The strengthening was driven by a higher nominal effective exchange rate (NEER), as UK interest rates remained above those of other advanced economies. Elevated domestic inflation also played a smaller contributory role. As of March 2025, the CPI-based REER stood 2.6 per cent above the 2024 average. The IMF's EBA models estimated the pound's overvaluation in 2024 at between 1.5 and 8.7 per cent, with staff assessments converging around a 6.5 per cent overvaluation using an elasticity of 0.26. This appreciation partially reverses the pre-2019 REER depreciation that followed Brexit-related uncertainty. Despite the widening CA deficit, capital inflows—particularly in the form of portfolio investment in debt—helped finance the gap. However, these inflows were partially offset by increased direct investment outflows. The UK's status as a global financial centre brings inherent volatility to its capital flows, largely driven by intragroup bank transactions. While this volatility poses potential risks, the Bank of England's Financial Policy Committee (FPC) continues to monitor systemic risks through a robust macroprudential framework. Foreign exchange (FX) reserves remain low relative to standard adequacy metrics, but the UK maintains a free-floating exchange rate regime. Sterling's share in global reserves has increased modestly from an average of 4.5 per cent during 2016–2019 to around 5.0 per cent in 2024. FX reserves experienced minimal drawdown through the year. The UK's current account deficit rose to 2.7 per cent of GDP in 2024, with the pound assessed as overvalued by 6.5 per cent, eroding competitiveness. A 4.2 per cent REER appreciation and capital flow volatility persisted, though FX reserves remained stable. Sterling's global reserve share edged up to 5 per cent, while the BoE continues to monitor risks via macroprudential tools. Fibre2Fashion News Desk (HU)
Mint
21-07-2025
- Business
- Mint
Why are banks letting a useful tool for risk management gather dust?
The term 'risk appetite'(RA) gained currency after the 2008-09 financial crisis that began in the US. In 2013, the European Banking Authority (EBA) and Financial Stability Board (FSB) were the earliest regulators to include RA in formal regulatory asks. The Reserve Bank of India (RBI) in its 2014 Master Circular on Basel III Capital Regulations articulated the need for banks to document their RAs clearly. Bank boards and their managements are expected to set risk limits and lay down the types of risk exposure they plan to take in pursuit of profits. This is to be formally documented as a Risk Appetite Statement (RAS) and monitored for any breach. It calls for an upfront resolve that the bank will not take certain types of risk and keep those taken within the ambit of its stated risk appetite. Since some forms of lending are highly profitable in times of an economic boom but can erode more capital than the profits made if and when the cycle turns, an RAS encourages thinking beyond the short-term. The act of stating what level of risk the bank's board acknowledges as being borne by the business heightens the awareness of risks and ensures capital planning to cover them. To achieve their objectives, RAS limits and thresholds must be unambiguous, granular and quantitatively robust. However, that is often not the case. Also Read: Devina Mehra: Why investing in a bank often takes nerves of steel RAS as a neglected risk management tool: The actionability of a risk appetite statement has remained an issue. Globally and in India, only a few exemplar banks have well- designed, strategically relevant and definitive statements. In such cases, the RAS drives the strategic planning exercise. Further, enterprise-level thresholds cascade to the business-unit level, translating into growth projections, capital requirements and risk guard-rails for each unit. In contrast, at banks where the RAS serves only as a regulatory tick box, the strategy planning exercise rarely refers to the statement and business-unit level planning and risk-taking are not aligned with enterprise-level risk limits. At times, business unit heads are not even aware of how the enterprise-wide risk appetite applies to their operations. This leaves the board with limited control over the risks the bank actually ends up taking. Banks need impactful risk appetite statements. Let's focus on three aspects. Also Read: Banking on trust, losing billions: India's bank fraud epidemic needs urgent answers Explicit quantitative thresholds: Let's take the capital adequacy ratio (CAR), a common metric of a capital cushion to absorb losses. RA thresholds are often set on these. Say, the regulatory minimum CAR is 12% of risk-weighted assets. A bank cannot have a business plan that will cause its CAR to fall below 12% in an adverse situation of loans going bad. If a hypothetical Bank XYZ's CAR is 18%, to set a CAR threshold, it may take the average of the two (i.e. 15%) or review its historical CAR level and limit it to the average of that. Or it could take a number between its historically lowest CAR and its average. While this sounds comforting, such approaches lack economic rigour and risk relevance. Typically, for a healthy bank, the minimum capital to be held as directed by CAR regulation should be higher than its economic capital (EC), or the amount of equity required by the bank to cover a loss of 1-in-1000 odds, stylized as a 'once-in-1,000-years loss.' Likewise, a bank could take multicycle loss data to—adjusting for the fat-tail nature of credit losses—estimate the size of a 1-in-3 odds loss. If such an event reduces the capital cushion by a sum that hits the bank's CAR by one percentage point, then an RA limit set at 13% implies a 1-in-3 chance of dropping below the 12% regulatory minimum. Such a choice suggests a very high risk appetite. What would a conservative bank with a lower risk appetite do? If a 1-in-20 shock (much less likely to happen) is estimated to hit the CAR by 4 percentage points, it could set an RAS threshold of 16%. Either way, for the RAS to work meaningfully, the bank must make an explicit choice. Also Read: Needed: A hard policy reset to make Indian banks shape up Risk-adjusted performance measures: The Risk Appetite Statements of banks often have return-on-asset (RoA) and return-on-equity (RoE) thresholds. But this does not allow the estimation of capital consumption at the business-unit level. For this to be done, banks must calculate return-on-economic-capital (RoEC). This would help in measuring the economic value added at the business-unit level and thus help both in improving capital allocation and ensuring that the RAS cascades through the bank. Stress testing: Bottom-up portfolio-wise stress tests should be carried out to estimate the sensitivity of the bank's losses to relevant macroeconomic and geopolitical factors. This is critical to simulate and assess how a portfolio growth strategy will impact losses during a downturn. While banks perform stress tests to meet regulatory requirements, there is scant evidence that this exercise has been integrated with their RAS and strategic planning processes. Most banks perform 'static' stress tests, with their capital sufficiency tested under the assumption of, say, an X% surge in bank-wide losses. Also Read: IndusInd saga: No escape from heightened bank vigilance Banks must shift from treating the RAS as a tick-box routine to using it as a steering wheel for their strategy in the context of risk control. Without a functional RAS, a bank's board cannot properly supervise the risks being taken by business units in their rush to meet short-term targets. When stakeholders are hit by earning shocks or adverse disclosures, bank boards are often just as surprised as shareholders and the regulator. A well- designed Risk Appetite Statement could tackle this problem and result in markedly safer banking. The author is a quantitative risk management professional and a visiting faculty of risk management at IIM Calcutta.
7NEWS
18-07-2025
- Business
- 7NEWS
Union takes action against Commonwealth Bank for alleged ‘sham' redundancies
Action has been launched against the country's biggest bank over claims it carried out 'sham' redundancies in Australia to take advantage of cheap overseas labour. The Commonwealth Bank announced in June it was making 304 roles across its technology and retail departments redundant. But the Finance Sector Union argues the CBA breached the Enterprise Agreement when it was 'caught' advertising the same jobs at its Indian subsidiary in Bangalore, India. The union said 110 of the roles advertised to be based at CBA India had the same job title as those involved in the redundancies. 'By hiring for the same job, at their own Indian subsidiary, they're showing themselves to have breached the Enterprise Agreement and essentially lied to their workers,' FSU national secretary Julia Angrisano said. 'This is the very definition of bad faith.' According to Clause 36 of the EBA, redundancies can occur if work is no longer required, needs to be done at a different location which is not within a reasonable commuting distance, or if the role is restructured so that some or all of the duties of the position are split up between one or more other positions. 'Sham redundancy action' The union said its members had been left 'outraged' and is taking its claims to the Fair Work Commission. 'We do not believe that the redundancies outlined in these change processes are in fact genuine redundancies and that in doing so, CBA has breached the terms of the Agreement,' Angrisano said. 'These jobs are not required to be done in India, they're just moving the work there to take advantage of cheaper labour and further line their own pockets.' Angrisano said Australian taxpayers are 'paying for the sham redundancy action'. 'Bona fide redundancies are taxed concessionally in the hands of the workers. It is especially disgusting that the nation's richest company is also reducing the tax take as it makes the final payment to hundreds of Australians that we know are being sacked solely to have their work performed offshore,' Angrisano said The Commonwealth Bank said the FSU 'did not raise any concerns' about like-for-like job changes during formal consultation, and said there 'is no basis to their allegations'. 'Like many organisations, we regularly review how we are organised to deliver the best experiences and outcomes for our customers,' a bank spokesperson said. 'We have been transparent in communicating workforce shifts with our technology team over the last three years. 'This includes being explicit about roles which are declining and offering reskilling and upskilling opportunities to people in those roles.' The union savaged the CBA in March for slashing more than 150 jobs shortly after revealing a $2.6 billion quarterly profit.
