Reviewed Supervisors Overall Applied The EBA’s Recommendations On Tax Integrity And Dividend Arbitrage Trading Schemes, The EBA Report Finds.

The European Banking Authority (EBA) today published a Peer Review assessing the effectiveness and degree of supervisory convergence of issues relating to tax integrity and dividend arbitrage trading schemes following the implementation of its 2020 Action plan on dividend arbitrage trading schemes. The action plan aimed to clarify that supervisors, while not responsible for investigating tax crimes, have responsibility for ensuring that financial institutions have systems and controls in place to manage tax crime risks.

The Peer Review found that most of the reviewed supervisors largely or fully applied the benchmarks assessed and, overall, supervised these areas adequately.  This indicates that the EBA’s action plan has been effective in strengthening supervision in this area.

The Peer Review sampled six national prudential authorities and supervisors on anti-money laundering and countering the financing of terrorism (AML/CFT) to see how they integrated tax integrity into their risk-based supervisory work. It considered tax integrity issues broadly, not just dividend arbitrage trading schemes (such as cum-cum or cum-ex schemes), as these vary across jurisdictions.

The Peer Review focuses on the responsibilities assigned to AML/CFT and prudential supervisors, mainly to ensure that financial institutions have systems and controls in place to manage tax crime risks.  The Report does not look at or comment on the effectiveness of the national frameworks in place to identify or investigate tax crimes which are beyond the responsibility of AML/CFT and prudential supervisors.

The Report sets out its findings based on four benchmarks:

•            the effectiveness of integration of tax integrity into risk-based AML/CFT supervisory work on credit and financial institutions;

•            the effectiveness of integration of tax integrity into sectoral and institution-specific ML/TF risk assessments;

•            the effectiveness of arrangements for reviewing the due consideration of tax integrity in institutions’ internal governance arrangements;

•            the effectiveness of consideration of tax integrity in the assessment of the reputation, honesty and integrity of members of the management body and key function holders.

The EBA identified general and individual follow-up measures, which will help further build consistency and effectiveness in supervisory outcomes across the EU and to limit the financial system’s exposure to illegal tax schemes and other tax evasion.

Legal basis and background

Article 30 of the EBA Founding Regulation requires the EBA to periodically conduct peer reviews of some or all of the activities of competent authorities within its remit, to further strengthen consistency and effectiveness in supervisory outcomes. Peer reviews identify follow-up measures to achieve this, together with best practices seen in competent authorities. After two years, the EBA is required to assess the adequacy and effectiveness of actions taken by competent authorities in response to the follow-up measures.

The Peer Review has been performed by an ad hoc Peer Review Committee made up of EBA and competent authorities’ staff in accordance with the EBA peer review work plan for 2023-2024 and following the process in Article 30 of the EBA Regulation and EBA peer review methodology.