The implementation date for the 5th update to the European Anti-Monetary Laundering Directive is fast approaching. In this article, I will go through some of the main changes to the directive, but more importantly describe two aspects that AML5 gives benefit to the marketplace that wasn’t immediately possible before.
What is the Anti-Monetary Laundering Directive?
The European Union wants to combat monetary laundering and terrorism financing, so with the AML Directive, it has listed out requirements that each member country, or state, should put into law or implement to tackle these important issues. This is now the 5th update, which is also called 5AMLD or AML5. The EU wants this to be in effect on the 10th January 2020, which is a little under two months away.
Note though that AML4 already exists, and is in effect. It is these new changes in AML5 that have that date set.
What has been added in AML5?
The main points to note are:
- Virtual currency (such as crypto currency) and wallet providers are under regulation now.
- EU member countries and states must start to publicly provide PEP (Politically Exposed Persons) lists.
- They must also publicly provide details of the beneficiary owners of registered companies in their countries.
- All bank accounts, safe-deposit boxes and trusts in the EU must be linked to an owner and that information must be recorded.
- Prepaid money cards in the EU have lower limits on both value and transaction amounts.
- Brokers who assist in trades of fine art valued over 10,000 Euros are under regulation now.
- Real estate ownership must be complete and available in data registers.
To help manage this, some more points to note are:
- Financial Intelligence Units (FIUs) in each member state or country will be given greater powers to communicate together to gather information if something appears suspicious in a transaction.
- There is a plan to create a central european register of owners of virtual currency such as crypto currency.
- In 2021, the EU require that these public lists, such as PEP and company registers, are digitally connected between each country.
There are also some additions to assist with handling transactions with high-risk third countries, for example, countries that are noted to have lower levels of control over money laundering.
What will happen 10th January 2020?
On this date, those EU registered companies that have been added in AML5, must be regulated. In other words, they must have verified the identity of their customers. From that date also, all transactions performed must be regulated against the possibility of money laundering or the financing of terrorism.
In terms of prepaid cards, the limits on new card sales and transactions will have those limits enforced.
If the cards are anonymous, the limits are now reduced to maximum purchases of 150 Euros in offline shops, and 50 Euros online. If the holder is registered, those limits will not apply.
For registered companies, the beneficial owner must be registered and available to anyone who has a legitimate interest to access that register. The member countries and states must attempt to keep those details up to date, and regulated entities must report discrepancies.
All european registered bank accounts, safe-deposit boxes and trusts must have recorded details of the owner that is easy to identify and link to at least one person. This information will be freely accessible to the FIUs, if they need to as part of any investigation.
As politicians or persons in places of authority, the details of the individual and their role must be registered in each member state or country. PEP checks must be performed and checked during Customer Due Diligence (CDD) when establishing a connection to the individual, usually when signing up for an account or relationship with the a company. There are global PEP lists that are also recognised and can be used instead during those checks, if the member country hasnt released a domestic list.
Fine art and real estate:
If a broker assists with the sale of fine art, they are under regulation for all transactions over 10,000 euros. The details must be recorded. In terms of real estate, the owners must be digitally recorded, and available to FIUs or other regulated entities across member states.
And finally, regular risk management must be performed with CDD, if there is reason to note a change in the risk level of the customer or transaction.
Does my company need to act?
If you are involved with larger financial transactions, your customer due diligence process will probably need more verification of the customers identity. In these cases, gaining a copy of some identity document and proof, is needed. Better if this can be done digitally.
Maintaining good records of your customers, commonly called Know Your Customer (KYC) and Know Your Business (KYB) should be looked at, and especially ways to make those processes more streamlined, both for you and your customer.
Two perspectives on AML5
Finally, I’d like to summarise two scenarios on why such directives as AML are positive for particular processes for the marketplace.
The first scenario, is that to the businesses who are reliant on access to digital data and related sources. I’ll put some context here to help explain. Companies would rely on processes where customers submit additional identity details via postal delivery, or by completing paper based forms as part of business relationships. The costs in time and administration were always possible pain points for many companies. There was no effort to improve those processes at a national level, that each company could make use of. It relied instead on each company optimising their internal processes to reduce the costs involved. Customers were aware of the sometimes long processes to get approved for transactions, or account creation.
This leads on to the second scenario, where customer demand for digital processes makes them choose who they prefer to buy from. Again, some context to outline this. We are living in a world, where digital first is becoming almost a given requirement on anything we do. As consumers, we are changing to our preferred methods of buying habits. We prefer companies that allow us to get our purchases done, or accounts created, almost immediately and without paperwork or needing to wait once we start.
As consumers, we much prefer those companies that can provide us with those digital methods. AML5 is moving the requirement to the member states and countries, to provide these to the marketplace, and not only for investigative purposes.
AML5 is a part of national changes where processes are quickly being put into place that moves what was previously analogue, and offline, to more complete digital ones. This will help us all, as we become more digital, more online, and more real-time. Knowing we have access to good sources of data to help us in identifying ourselves online, if one of the the parts needed for this to work.
“AML5 is a further step towards helping us achieve this”
Article by: Jason Coombes, COO at ZignSec
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