Negotiations between the European Union and Monaco have taken a hit after top regulators voiced their concerns to the European Commission over the deal.

After eight years of talks, the planned Association Agreements between the European Union and three non-member microstates – Monaco, Andorra and San Marino – may have been compromised.

With just months until negotiations are expected to conclude in Monaco, Europe’s top finance regulators, who monitor EU banks, financial markets and the insurance and pensions sectors, have voiced concerns over the EU’s stronger ties with the three nations, saying tighter relations could allow illegal money and unlawful practices to slip into the EU, threatening the bloc’s consumers.

In a letter to the European Commission, obtained by Politico, the regulators reportedly say that the three microstates have “historically maintained less rigorous financial regulations” and “may be prone to money laundering and other illicit activities”.

They add that companies may try to set up shop in the microstates in an attempt to take advantage of the “lighter” financial standards, which would create “significant risks to consumers” in the EU.

This, they say, would undermine years of work in holding financial firms accountable in the fight against illegal activities.

POLITICIANS REACT

The letter has raised alarm within the EU with Paul Tang, a Dutch MEP for the Socialists and Democrats, saying, “Proper scrutiny and safeguards are essential to ensure we don’t let any Trojan horse through our gates”.

The MEP, who has worked on money laundering and tax legislation, adds, “When the European watchdogs issue a joint warning, we’d better listen.”

MONACO’S EFFORTS TO MEET EU STANDARDS

The Monaco government says that it has been tightening its financial sector for years, but it was a bombshell report in January 2023 by the EU finance watchdog Moneyval that pushed Monaco into overdrive. It suggested the Principality “step up” its efforts to “investigate and prosecute money laundering, to confiscate and recover proceeds of crime and to strengthen its supervisory system”.

Monaco has since taken significant steps to meets its obligations, including the establishment of a financial crimes task force, creating a national action plan, and the signing of an MOU between the Attorney General, the Director of Public Security and SICCFIN to facilitate the sharing of information and procedures between the three bodies.

BEYOND FINANCE

Financial services is only a part of what is being negotiated in the Association Agreements. They also are meant to be a vehicle to remove trade obstacles whilst following many EU regulations to benefit from free movement of people, goods, services and capital.

The European Commission had hoped to conclude the deals by the end of the year, but this new disclosure by regulators may delay, or even blow up, the finalisation.

By Cassandra Tanti and Stephanie Horsman. Photo by Monaco Life

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