The EU’s 5th Anti-Money Laundering Directive (5AMLD), which comes into force on 10 January 2020, tightens regulatory controls across more sectors, including crypto currencies. How will the various changes of the 5th AML Directive impact you?
- The scope of the 5th AML Directive extends to new sectors, including crypto currencies and custodian wallet providers, estate agents and rental intermediaries, and art dealers.
- The 5th AML Directive places greater emphasis on transparency around ultimate beneficial ownership in an attempt to fight financial criminals who hide behind complex corporate structures.
- A best practice approach to 5th AML Directive compliance includes ensuring access to trusted data, as well as having the right tools to streamline risk mitigation processes.
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Financial crime remains a persistent scourge across the globe, and it is therefore unsurprising that 2019 has seen increased regulatory pressure on banks and financial institutions to crack down on corruption.
On the immediate horizon is the EU’s 5th Anti-Money Laundering Directive, which requires member states to implement these rules into their national laws by 10 January, 2020.
The scope of the 5th AML Directive will be extended to include virtual currency exchanges, estate agents and rental intermediaries, art dealers, and custodian wallet providers.
Ongoing illicit activity, as outlined by the relevant 2018 European Parliament Directive, was a significant catalyst for the new anti-money laundering directive.
It said: “Recent terrorist attacks have brought to light emerging new trends, in particular regarding the way terrorist groups finance and conduct their operations.
In order to keep pace with evolving trends, further measures should be taken to ensure the increased transparency of financial transactions, of corporate and other legal entities, as well as of trusts and legal arrangements having a structure or functions similar to trusts, with a view to improving the existing preventive framework and to more effectively countering terrorist financing.
It is important to note that the measures taken should be proportionate to the risks.”
The changes in anti-money laundering rules
With a matter of weeks before the 5th AML Directive comes into force, there are six important areas of change worth noting:
Under the 5th AML Directive, crypto currencies will face more stringent controls, with exchanges being required to register with the relevant authorities in their jurisdictions, conduct customer due diligence, and prepare suspicious activity reports where these are deemed necessary.
Moreover, Financial Intelligence Units will be required to keep records — including names and addresses — of those purchasing virtual currency.
The 5th AML Directive places greater emphasis on transparency around ultimate beneficial ownership (UBO) as part of a targeted attempt to fight back against financial criminals who hide behind often complex and opaque corporate structures.
Under the 5th AML Directive, member states will be required to maintain inter-connected, publicly available national UBO registries. Separate registries for bank accounts must also be created, although these will only be accessible by authorities. UBO regulations will extend to trusts.
The new directive requires member states to create functional PEP lists that include all titles, roles or functions that are deemed to be politically exposed. Since incumbents within these positions change on an ongoing basis, the actual incumbent at the time of creating the list should not be included, but rather the title of the position itself.
Another loophole for would-be financial criminals — storing and moving funds via high value goods — is also a focus for the 5th AML Directive, which extends the range of goods that will be subject to reporting requirements and regulatory enforcement.
Art, oil, arms, precious metals, tobacco, historical, cultural and archaeological artefacts are all included.
High risk countries
When dealing with high risk countries — specifically those identified by the EU as having sub-standard AML regulations — companies will be required to perform enhanced due diligence, which may also include Source of Wealth investigations.
The 4th AML Directive set limits for monthly transactions on prepaid cards. The 5th AML Directive tightens this by dropping the limit from €250 to €150, with a €50 online/remote limit applicable. In addition, only cards issued within the EU are allowed, unless they were issued in a country with legislation that is deemed on par with EU AML standards.
Best practice tools for AML compliance
These stricter requirements, although necessary to fight back against the increasing scale and impact of financial crime, can add significantly to the day-to-day challenges faced by obliged entities, especially given that many compliance teams already experience time and resource constraints.
In particular, companies operating in those sectors that have not previously been subject to this level of oversight may find the new requirements daunting.
Refinitiv’s World-Check One, our risk screening platform, simplifies workflow and helps compliance teams to build a true visual of financial crime by combining World-Check Risk Intelligence data with leading-edge technology, all backed by a credible global brand, trusted human expertise and a 150 year history of delivering reliable, authoritative and accurate information.
Watch – World-Check One: Media Check Feature
Opt-in feature, Media Check, pinpoints the negative media content most relevant to helping you meet your regulatory and legislative compliance requirements and additional opt-in feature, UBO Check, identifies and screens the UBOs of entities on a single platform to help compliance professionals peel back the layers of the most complex corporate structures.
Watch – Beneficial ownership screening with Refinitiv World-Check One
Given that failure to adhere to the requirements of the 5th AML Directive carries not only the risk of financial and regulatory fallout, but also potentially severe reputational damage, adopting a best practice and comprehensive approach to the 5th AML Directive compliance should begin with ensuring access to trusted data, and investigating the right tools to automate and streamline key risk mitigation processes.