EU AML 5th Directive (“AMLD5”): Compliant yet?
The European Union is promoting transparency with the passage of a new directive aimed at preventing money laundering. With EU member states now being responsible for beneficial ownership, it will result in new challenges for obliged entities.
Purpose for AMLD5?
In the fallout from recent events such as frequent terrorist attacks in Europe and the “Panama Papers”, the European Union passed the Fourth AML Directive (Directive (EU) 2015/849). This legislation is aimed at the prevention of money laundering and tax-avoidance, and minimizing the ability of criminals to use those proceeds as oxygen to fund crime and terrorism. In addition amendments were made to this rule that is commonly referred to as the Fifth AML Directive (“AMLD5”). On 8 November 2016, the European Economic & Financial Affairs Council (“EcoFin”), met to discuss the European Commission’s action plan against money laundering and terrorist financing activity. The new regulation came into effect on the 26th of June, 2017; however, EU member states are still tasked with implementation within eighteen months.
What entities are Subject to AMLD5?
The core requirements outlined by AMLD5 can be divided into five key themes:
In support of these requirements, AMLD5 will be requiring EU member states to implement a registry of beneficial ownership. Specifically, member states must collect and maintain adequate, accurate and current information on legal entities, as prescribed by the technical specifications and procedures set out in Article 4C of Directive 2009/101/EC. For “obliged entities” operating in the EU, all Know Your Customer (“KYC”) information, including beneficial ownership information, should be readily available with procedures in place to in order to satisfy this requirement.
While the beneficial ownership registry maintains the basic level of customer due diligence, AMLD5 also imposes Enhanced Due Diligence (“EDD”) requirements on obliged entities. Whenever an EU-based bank enters into a transaction involving customers from a high-risk third country as defined by the European Commission, it must perform EDD to in order to reduce the potential of doing business with criminal organizations. This process includes collecting additional information, screenings on the involved entity, and completing a risk assessment. Risk rating methodologies should consider risk factors may that require updating KYC policies and procedures to fully address the EDD requirements of AMLD5 for all transactions involving high-risk countries. Once this risk rating process is completed, obliged entities must then ensure that this data is automatically delivered to the national authorities, providing member states with access to this information.
Although some clients of obliged entities will not require EDD, AMLD5 only outlines the minimum EDD requirements obliged entities in member states must follow. If a bank operates within an EU country that chose to adopt more stringent EDD requirements, then these covered entities should ensure that they should comply with the AMLD5 requirements in addition to local country regulations base on their jurisdiction.
AMLD5 and Financial Technology
AMLD5 also imposes requirements on the type of money that bad actors may launder. Specifically, the directive now requires virtual currency exchanges (i.e., block chain) identify risks associated with related products. All exchanges of virtual currencies are now considered obliged entities, thus leveling the playing field with more traditional financial institutions.
Prepaid cards will also be required to perform the same level of due diligence as Money Service Businesses (“MSB”). Under AMLD5, obliged entities operating in EU member states will be required to identify customers of remote payments for all transactions exceeding €150. This requirement will be phased in 3 years after the deadline for this directive. Although certain exemptions may apply for low-risk customers, all obliged institutions should have appropriate controls in place to meet this requirement.
AMLD5 will enhance the anti-money laundering rules already in place, as well as impose new requirements that will affect the operations of obliged entities. From onboarding procedures to the collection of outstanding documentation, obliged entities will be required to now collect, maintain and share customer information on products that they may not currently be tracking. However, AMLD5 has not yet been entered in publication, and is not expected to take effect until 2019. In order to meet this deadline, obliged entities need to begin addressing their deficiencies in these areas immediately. Sia Partners has extensive experience implementing regulatory changes in the EU and globally. Please reach out to Sia Partners if your organization has any questions or needs regarding AMLD5.
- AMLD5 enables financial institutions to better protect against money laundering and terrorist financing by making beneficial ownership more transparent.
- The public registry of beneficial ownership will require financial institutions to conduct CDD in respect of any beneficial owner that controls more than 25% of the shares or voting rights of a business.
- In order to meet proposed deadlines, obliged institutions must take steps to address the operational challenges of implementing AMLD5.
- Sia Partners has extensive experience implementing regulatory changes in the EU and globally.