- The European Banking Authority’s (EBA’s) inquiry showed that national authorities do not share the same understanding of dividend arbitrage trading schemes, due to differences in Member States’ domestic tax law;
- The inquiry concluded that facilitating, or handling proceeds from tax crimes undermines the integrity of the EU’s financial system and, therefore, sets out a number expectations of credit institutions and national authorities under the current regulatory framework;
- The EBA decided on a 10-point action plan for 2020/21 to enhance the future framework of prudential and anti-money laundering requirements covering such schemes.
The EBA published the results of its inquiry into dividend arbitrage schemes, which looked into the actions of prudential and anti-money laundering (AML) and countering the financing of terrorism (CFT) supervisors in dealing with such schemes. The resulting report sets out the EBA’s expectations of credit institutions and national authorities under the current regulatory framework. The EBA also decided on a 10-point action plan for 2020/21 to enhance the future framework of prudential and anti-money laundering requirements covering such schemes.
The report sets out the EBA’s expectations under the current regulatory framework include requiring them to take a comprehensive view of the risks highlighted by dividend arbitrage trading cases looking at the adequacy of financial institutions’ internal controls and internal governance arrangements, their systems and controls of anti-money laundering (AML) and countering the financing of terrorism (CFT). The expectations also cover the exchange of information between prudential and AML authorities when performing reviews of institutions’ internal controls and governance; AML authorities reaching out to local tax authorities; prudential and AML authorities pursuing targeted inspections; and prudential supervisory colleges discussing such schemes.
To enhance the future regulatory framework, the EBA also published a 10-point action plan, which seizes on the opportunities afforded by recent legislative changes in the EU Capital Requirements Directive (CRDV) and the EBA’s AML/CFT mandate in the EBA Regulation, and which will be implemented in 2020 and 2021. The EBA will strengthen its prudential Guidelines on Internal Governance, its Guidelines on the Assessment of the Suitability of Members of the Management Body and Key Function Holders, and its Guidelines on Supervisory Review and Evaluation Process (SREP), and it will also monitor how prudential colleges will follow up on Cum-Ex related guidance.
With regard to AML requirements, the EBA will amend its Guidelines on money laundering and terrorist financing (TF) risk factors, its Guidelines on Risk-Based AML/CFT Supervision, and its biennial Opinion on ML/TF Risks. The EBA will also allocate explicit time to such schemes during its staff-led AML/CFT implementation reviews of national authorities, and monitor AML/CFT colleges for financial institutions that are exposed to significant ML/TF risks associated with tax crimes.
The EBA will then carry out a second formal inquiry into the actions taken by financial institutions and national authorities to supervise compliance with the aforementioned amended requirements.
The EBA has a legal duty to contribute to preventing the use of the financial system for the purposes of money laundering and terrorist financing (ML/TF) and to lead, coordinate and monitor the AML/CFT efforts of all EU AML/CFT super and financial institutions across all sectors. The law implementing these powers and this mandate came into effect on 1 January 2020.
On 28 November 2018, the European Parliament asked the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) to “conduct an inquiry into dividend arbitrage trading schemes such as cum-ex or cum-cum in order to assess potential threats to the integrity of financial markets and to national budgets; to establish the nature and magnitude of actors in these schemes; to assess whether there were breaches of either national or Union law; to assess the actions taken by financial supervisors in Member States; and to make appropriate recommendations for reform and for action to the competent authorities concerned”.