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1. Where a financial supervisor has not applied measures laid down in Directive (EU) 2024/1640, or the provisions of national law transposing that Directive, or has applied measures in a way that appears to be a breach of Union law leading to systematic failures in its supervision which affect multiple obliged entities and undermine the effectiveness of the AML/CFT supervisory system, the Authority shall act in accordance with the powers set out in paragraphs 2, 3 and 4.

2. The Authority may initiate an investigation of a potential breach of Union law referred to in paragraph 1 on its own initiative where it has an indication of such a breach based on well-substantiated information collected by the Authority when carrying out its tasks pursuant to this Regulation. The Authority may also investigate an alleged breach or non-application of Union law upon a well-substantiated request from one or more financial supervisors, the European Parliament or the Commission. Where an investigation of a potential breach of Union law has been requested pursuant to the first or second subparagraph, the Authority shall duly inform the party making the request how it intends to proceed with the matter and whether an investigation into the alleged breach is warranted. Where the Authority decides to proceed with an investigation, it shall first inform the financial supervisor concerned.

3. The financial supervisor that is the subject of an investigation pursuant to paragraph 2 shall, without delay, provide the Authority with all information that the Authority requests for the purposes of its investigation, including as regards how the acts referred to in paragraph 1 are applied in accordance with Union law.

4. Where deemed appropriate and necessary, the Authority may also, after having informed the financial supervisor that is the subject of the investigation, provide an opportunity to all other financial supervisors to transmit information to the Authority that they deem relevant or directly address a duly justified and reasoned request for information to any other financial supervisor. The addressees of such a request shall, without undue delay, provide the Authority with clear, accurate and complete information.

5. The Authority may, no later than six months from the date of initiating its investigation, address a recommendation to the financial supervisor subject to investigation, setting out the action necessary to comply with Union law. Before issuing such a recommendation, the Authority shall engage with the financial supervisor where it considers that such engagement is appropriate in order to resolve the systematic failures of supervision resulting in the breach of Union law, in an attempt to reach an agreement on the actions necessary for compliance with Union law. The financial supervisor shall, within 10 working days of receipt of the recommendation, inform the Authority of the steps it has taken or intends to take to ensure compliance with Union law.

6. Where the financial supervisor has not complied with Union law within one month of the date of receipt of the Authority’s recommendation, the Commission may, after having been informed of that fact by the Authority or on its own initiative, issue a formal opinion requiring the financial supervisor to take the action necessary to comply with Union law. The Commission’s formal opinion shall take into account the Authority’s recommendation. The Commission shall issue such a formal opinion within three months of the date of adoption of the recommendation. The Commission may extend that period by one month. The Authority and the financial supervisor shall provide the Commission with all necessary information.

7. The financial supervisor shall, within 10 working days of receipt of the formal opinion referred to in paragraph 6, inform the Commission and the Authority of the steps it has taken or intends to take to comply with that formal opinion. When taking action in relation to issues which are the subject of a formal opinion, the financial supervisor shall comply with that formal opinion.