The Fifth Money Laundering Directive (5AMLD) will come into force on the 10th January 2020. It will address a number of weaknesses in the European Union’s AML/CFT regime that have come to light since the enactment of the Fourth Money Laundering Directive (4AMLD) on 26th June 2017. The impact of the directive will be far-reaching; in this article we discuss the key changes and speak to industry experts about why they matter.
“More regulation creates clarity – and clarity creates peace of mind”
Remigio Bonguliemi – Chief Compliance Officer, Trade.io
Although much of 5AMLD’s content updates the 4MLD, it makes a significant new legislative step in the treatment of virtual currencies. In more detail, 5AMLD introduces the following measures:
The introduction of regulations paves the way for EU operators to introduce more cryptocurrency products and, crucially, to compete with Asian markets. Remigio Bonguliemi, Chief Compliance Officer of Trade.io, points out that safety is key to cryptocurrency confidence: “If you’re launching centralized products, having regulations is incredibly helpful to be able to sleep at night, and know that you’re not doing anything illegal.”
After 4AMLD cut the monthly transaction limit on prepaid cards to €250 (a measure to combat terrorist financing), 5AMLD sets an even lower limit of €150 – this limit also applies to the amount which can be stored on the cards. Similarly, online transaction limits are reduced to €50. Christopher Baines the Head of Compliance at Pockit said: “the directive is definitely a step in the right direction, it reduces the number of options for criminals”.
Prepaid cards issued outside the EU are now prohibited unless they were issued in a territory enforcing legislation equivalent to the EU’s AML/CFT and KYC standards. Obliged entities must review the way they handle prepaid card payments, and put mechanisms in place to identify (and refuse) transactions using cards from non-EU sources – which may involve significant revision of existing systems and procedures.
5AMLD expands the scope of legislation regarding other stores of value: art traders, for example, or those acting as intermediaries, now have AML/CFT reporting obligations and will have to perform due diligence procedures on customers. The directive specifically singles out high value works of art for the first time, by applying regulation to transactions involving art which amount to €10,000 or more.
The scope of 5AMLD is not limited to art: now, transactions involving a range of high value goods are considered high risk – including oil, arms, precious metals, and tobacco. Notably, historical, cultural and archaeological artifacts are included in the regulation – a move to specifically target funding for terrorist groups such as ISIS.
In 2017, 4AMLD introduced a focus on ultimate beneficial ownership (UBO) for the purposes of risk mitigation and money laundering prevention. 5AMLD builds on those steps, introducing the following measures:
The requirement to register beneficial ownership and have that information publicly available is as Head of Financial Crime, at ComplyAdvantage, Livia Benisty said, “a vital first step in detecting some of the vast flows of illicit funds transmitted through the financial system, and places a handicap on the preferred instrument of money launderers globally.”
Companies dealing with customers from high-risk third countries will be required to perform enhanced due diligence measures – specifically focused on addressing the risk posed by deficiencies in those countries’ AML protections. The measures include:
5AMLD requires EU member states to compile and publicly release a functional PEP list – made up of prominent politically exposed public functions. This requirement extends to accredited international organizations, and the EU will also release an EU-level version of the list.
Functional PEP lists are rare and so can need a little explaining. The list created by member states for 5AMLD will feature the name of positions that are considered politically exposed but will not name the person fulfilling the function, which periodically changes. These lists are designed to make it easier for smaller compliance teams, or those with lower volumes of customers, to identify the PEPs that they should be screening against and monitoring for ongoing changes to risk. Keeping a list of people filling these functions up to date may involve significant administrative effort as Joanna Jenkins, Chief Compliance Officer at Railsbank said “data discrepancies could cause issues” – meaning companies should take careful steps to ensure a sufficient level of compliance.
This article should be used as a guide and not taken as legal advice.
Need help complying with the EU’s Fifth Money Laundering Directive? ComplyAdvantage’s data and solutions can be used across financial services to make sure business meet and exceed regulatory expectations. So whether you’re a cryptocurrency exchange, auction house or prepaid card provider our real-time data and screening solutions will ensure that you are 5AMLD compliant.
Want to meet and exceed the expectations of European regulators? Get in contact with ComplyAdvantage today!
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