The EU’s Fifth Anti-Money Laundering Directive is finally here. Published in the Official Journal on June 19 of this year, the new directive became binding on 9 July. The aim? To tighten the screws on terrorist financing and drive up transparency in financial transactions. No small task for those firms affected and yet another compliance hurdle to overcome. And the clock is already ticking, with the deadline for implementation set for January 10, 2020.
What are the key changes?
New tighter regulation of virtual currencies such as Bitcoins.
For the first time, the revised directive sees brand new controls applied to virtual currency exchange platforms, providers of electronic wallets, and virtual currency accounts. The aim – to identify users more easily.
Enhanced due diligence requirements for high-risk countries.
Countries categorized as high risk are laid out in a Commission Delegated Regulation. Under the new directive, firms dealing with any of these countries will be obliged to monitor their transactions more closely. This includes obtaining additional information on customers’ business connections, sources of funds, and reasons for transactions.
Stricter transparency rules for e-money products.
New amendments lower the threshold for anonymous electronic payments and set out stricter requirements for customer due diligence (CDD).
Better access to information on beneficial owners.
Member states will be required to partially disclose information on the beneficial ownership of companies and corporate entities operating for profit (in the context of Article 54 AEUV). This brings an added layer of security to third parties looking to do business with these organizations. The hope is to enable closer scrutiny of information by civil society.
Enhanced supervisory powers for Financial Intelligence Units.
The revised directive paves the way for greater cooperation between the EU’s Financial Intelligence Units (FIUs). Centralized account registers und electronic data retrieval systems should provide FIUs with easier access to information on bank and payment account holders.
Who is impacted – and how?
The new directive makes its mark on a wide range of financial organizations, including investment firms, credit institutions, and investment funds, as well as trust or company service providers. Whatever their business, all of these entities will face changes to their internal measures and workflows. Issuers of electronic money, for example, will need to re-evaluate their business models. Bitcoin platforms and wallet providers will have to implement a whole new money laundering prevention system.
Here it is crucial that firms adopt a structured, software-controlled approach to implementing new processes. Compliance solutions already have a heavy burden to bear and need to be able to cover existing regulatory areas such as client onboarding CDD, ongoing CDD, and continuous detection . And then there’s blockchain to consider, the decentralized public ledger for bitcoin transactions. Dealing with blockchain data is no picnic – and the same can be said for regulating cryptocurrencies and implementing anti-money laundering systems.
All in all, not for the faint-hearted. And it’s fair to say the new regime spells a challenging time ahead for those affected.
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32018L0843 Accessed 06 July 2018
https://www.moneylaunderingwatchblog.com/2018/05/the-fifth-anti-money-laundering-directive-extending-the-scope-of-the-european-unions-regulatory-authority-to-virtual-currency-transactions/ Accessed 07 July 2018
https://www.trulioo.com/blog/know-your-customer-kyc-due-diligence-best-practices/ Accessed 07 July 2018