Just over a month ago, the final text of the Fifth Anti-Money Laundering Directive (5AMLD) was published, kicking off the 18-month countdown until it comes into play. Its precise, full impact is unknown for now, but it is expected to significantly impact the way governments, regulators and businesses in Europe have to approach financial crime risk.
What’s the rush?
This new directive followed the former surprisingly quickly in large part due to the rising popularity of digital currencies combined with the hysteria following the Panama Papers. Given it’s only been 2 years since the last AMLD was adopted (some countries are still trying to implement it), compared to the 12-year gap between the previous AMLDs, it is clear the European Commission is focused on reassuring people and businesses that they are on top of new and developing issues.
What does 5AMLD actually change?
The key change from the 4AMLD comes in the definition of “obliged entities”, increasing its scope to include virtual currencies, anonymous prepaid cards and other digital currencies. Previously, there have been no specific laws aimed to cope with the risks of virtual currencies and it’s clear that with this new directive, the European Commission is intent on making sure that virtual currencies do not become a safe space for criminality. It also shows clear signs of their move to increase the scope of the fight against money laundering (ML) and terrorist financing (TF), as criminals can take advantage of the anonymity of virtual and digital currencies.
The other key aspect of the 5AMLD is that it further clarifies the requirements and timings for the implementation of the required beneficial ownership registers introduced in the 4AMLD. Essentially, member states and the European Commission will be required to keep accurate and up to date registers that must be interconnected to the European central platform. This integration will allow for more efficient information sharing, making it easier to combat ML and TF.
Other features include the adjustments made to address Politically Exposed Persons (PEPs), expanding the definition and pledging to publish a combined list of EU and Member states’ lists of all prominent public functions. Traditionally, a “one size fits all” and “once a PEP, always a PEP” approach has been used, but this system is not adequately risk-based. The new regulations hope to address this issue by integrating a more nuanced and comprehensive approach to identifying and managing the financial crime risked linked to PEPs.
There is also set to be enhanced co-operation and information sharing among EU Financial Intelligence Units (FIUs) in the hope that this will make information more easily accessible and align with international best practices. FIUs across the EU receive broader powers under the 5AMLD as they will no longer need be limited to the identification of a predicate offence or suspicious activity report prior to filing an information request.
So, how to prepare?
With this new directive being introduced, here are a few things firms may want to consider in preparation:
1) Virtual Currencies – 5AMLD will require obliged entities, i.e. providers engaged in exchange services between virtual and fiat currencies, to be registered and to comply with AML and CFT requirements. National authorities will be authorized to obtain all the associated information and regulate them accordingly. Exchanges that fall under the definition of an obliged entity will need to start benchmarking their existing frameworks against existing EU and jurisdiction specific AML & CTF controls and making any appropriate enhancements.
2) PEP Categorisation – With changes being made to PEPs, firms may want to start thinking about how they categorise PEPs and how they apply different levels of monitoring such that when the new categorisation criteria come in, they are prepared
3) Increased Reporting – Under new business ownership discrepancy rules, firms will be obliged to report discrepancies they find between the beneficial ownership information available in the central registers and their own registers. In the case of reported discrepancies, Member States will be obliged to ensure that appropriate actions be taken to resolve the discrepancies in a timely manner.
4) Due Diligence Advances – 5AMLD will require a specific Enhanced Due Diligence list to be applied when dealing with high-risk countries defined by the European Commission. You should review and update your due diligence processes to ensure full compliance.
If you need any help scoping enhancements for implementation or indeed reviewing whether your current procedures meet the requirements of EU or jurisdiction specific requirements, FINTRAIL will be happy to offer assistance.