Art. 16 Supervisory actions | RTS on group-wide minimum requirements and additional measures for third-country subsidiaries and branches | AML

This article sets out the escalating supervisory response available to the supervisor of the home Member State when the additional measures taken by a parent undertaking or obliged entity under the preceding articles of this regulation are judged to be insufficient to effectively manage money laundering or terrorist financing risks in their third-country branches or subsidiaries.

It operates as a two-tier escalation mechanism: a first level of intervention requiring corrective action plans or risk mitigation measures, and a more severe second level — triggered when those first-tier actions fail or when risk cannot be effectively managed at all — that can result in restricting or fully closing down third-country operations.

The article also sets out the factors supervisors must weigh when deciding which actions to take.

Important points:

The supervisor of the home Member State is empowered to require parent undertakings or obliged entities to submit a management-body-approved risk mitigation plan or implement corrective measures within a specified timeframe, and must monitor compliance with those actions.
The supervisor of the home Member State can escalate to more severe measures — including prohibiting new business relationships, restricting or terminating existing ones, or requiring the closure of third-country operations — where risks cannot be effectively managed or where first-tier actions have not been complied with.
When determining which supervisory actions to apply, supervisors are required to take into account the nature and gravity of the risks, the extent of third-country legal impediments, and existing governance and control frameworks.

1. Where the supervisor of the home Member State determines, in accordance with paragraph 3 of this Article, that the additional measures implemented by the parent undertaking in the Union or the obliged entity pursuant to this Regulation are insufficient to ensure that their branches or subsidiaries in the third country effectively manage the risk of money laundering or terrorist financing, the supervisor of the home Member State shall, using the powers available under Union or national law, exercise one or more of the following additional supervisory actions:
  1. require the parent undertaking in the Union or the obliged entity to submit and implement, within a specified timeframe, a risk mitigation plan approved by the relevant management body, aimed at addressing the identified risks, weaknesses or shortcomings;
  2. require the parent undertaking in the Union or the obliged entity to implement, within a specified timeframe, corrective measures available to the supervisors under Union law or national law to address identified weaknesses or to mitigate risks.
2. The supervisor of the home Member State shall monitor the implementation of the actions referred to in the first subparagraph, points (a) and (b), where applicable, to satisfy itself that the risks of money laundering or terrorist financing are effectively managed.
1. Where the supervisor of the home Member State determines that the parent undertaking in the Union or the obliged entity cannot effectively manage the risk of money laundering or terrorist financing connected with the operations of the branches or subsidiaries established in the third country or that the parent undertaking in the Union or an obliged entity has failed to comply with supervisory actions taken pursuant to paragraph 1 within the specified timeframe, it shall, using the powers available under Union or national law, exercise one or more of the following additional supervisory actions:
  1. require the parent undertaking in the Union or the obliged entity to ensure that the branches or subsidiaries in the third country do not enter into new business relationships or, where relevant, do not carry out occasional transactions;
  2. require the parent undertaking in the Union or the obliged entity to ensure that the branches or subsidiaries in the third country limit, reduce or terminate existing business relationships or do not undertake specific transactions or defined categories of transactions;
  3. require the parent undertaking in the Union or the obliged entity to close down some or all operations carried out in the third country.
1. When determining additional supervisory actions under this Article, supervisors shall take into account, where relevant:
  1. the nature and gravity of the identified risks, weaknesses or shortcomings;
  2. the extent to which relevant third-country legal or regulatory impediments affect the effective implementation or supervision of group-wide AML/CFT policies, procedures and controls; and
  3. existing governance arrangements, risk management frameworks and control functions systems.