The European Banking Authority has published a document that addresses anti-money laundering (AML) and counter-terrorist financing (CFT) when it comes to crowdfunding. The guidelines for crowdfunding platforms are incorporated into the Final Report “on customer due diligence and the factors credit and financial institutions should consider when assessing the money laundering and terrorist financing risk associated with individual business relationships and occasional transactions.” The report was part of a consultation regarding KYC requirements.
The first section of the report is described as generic and applying to all firms. The second section, Title II, is sector-specific and designed to “complement” the first section. Specifically:
“[Title II] sets out risk factors that are of particular importance in certain of those sectors and provides guidance on the risk-sensitive application of Customer Due Diligence measures by firms in those sectors. So as to foster greater convergence of supervisory expectations of the measures firms should take to tackle emerging risks, additional sectoral guidelines have been added to the original Risk Factors Guidelines on crowdfunding platforms, providers of currency exchange services, corporate finance, and payment initiation services providers (PISPs) and account information service providers (AISPs). Therefore, in total Title II now contains thirteen sectoral guidelines about very different key financial sectors such as for instance correspondents banking, retail banking, electronic money, money remittance, life insurance and investments firms.” [emphasis added]
The EBA posits that crowdfunding service providers (CSPs) should recognize the risk of the borderless nature of their transactions as customers may be located anywhere in the world, including high-risk locations. The EBA states that CSPs should know their customers as to not be utilized for illicit activities as funds could be used to finance a terrorist attack.
The EBA includes the utilization of virtual currencies as well as it cautions against the ability for nefarious actors to leverage these digital platforms to move or launder funds.
The document notes that changes in financial services has compelled the udpated report:
“… since the first publication of these Guidelines in 2017, the financial sector has evolved and existing and emerging risks have been identified (e.g. crowdfunding platforms, Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs), firms providing activities of currency exchange offices, corporate finance). Therefore, new sectoral guidelines have to be included so as to tackle the specific AML/CFT risks of those sectors and to promote convergence.”
The advent of pan-European crowdfunding rules, where an issuer may raise up to €5 million across all EU member states, may have compelled the EBA to address online capital formation in regards to securities crowdfunding.
The EBA report may be downloaded here or available below.