A Guide to Anti-Money Laundering for Crypto Firms

What Could 6AMLD Mean for Technology?

Regulation Knowledge & Training

Regulated financial institutions must become compliant with the European Union’s Sixth Anti-Money Laundering Directive (6AMLD), which is a highly coordinated effort by the EU to crack down on financial crime that imposes much tougher penalties for breaches. 

The ever-widening scope of anti-money laundering (AML) and combating the financing of terrorism (CFT) efforts—primarily 6AMLD and its predecessors—in the EU makes it more important than ever for firms to find effective solutions that can deal with increasing financial crime risks. 

Those that fail to adapt will find that in time their older (and in many cases already relatively outdated) compliance processes and methods for staying ahead of financial criminals will prove to be wholly ineffective. 

Existing Anti-Money Laundering Obligations

As we have explored previously, the existing body of five Anti-Money Laundering Directives (1-5AMLD) define key AML and CFT responsibilities for a selection of obligated firms that revolve around know your customer (KYC) processes and the reporting of suspicious activities to national authorities. 

Firms will usually comply with AML/CFT requirements by carrying out due diligence at the onboarding stage and beyond through ongoing surveillance of customer activities—for example through data analysis, screening, and transaction monitoring—to identify unusual behaviour. 

Implications of 6AMLD

The introduction of the 5AMLD widened the scope of which firms and institutions are caught within it, but it left ambiguities surrounding exactly what a “money laundering offence” is. 6AMLD, therefore, dives deeper into defining what money laundering and other financial crimes are, with a particular focus on penalties and sanctions. It also aims to promote more collaboration between the EU Member States in the fight against money laundering. 

While 6AMLD does not explicitly change existing compliance requirements, it does standardize the offence of money laundering across the EU and widens the range of penalties that can be levied as punishment, including fines and criminal liability. 

It also expands the list of 22 “predicate offences’— also known as “predicate crimes”, which refer to crimes that are components of larger crimes. The larger crime may be money laundering or terrorism financing. The expansion of the list of offences suggests that businesses will need to combat a much broader range of financial crime risks on a day-to-day basis. As AML regulation evolves, this list of offences is likely to grow, further exacerbating the AML/CFT challenges that face firms.  

6AMLD’s overall wider scope for liability, harsher and harmonised enforcement potential, and its focus on eliminating ambiguity should be ringing alarm bells at obligated firms. As a result, they must evaluate and revisit their AML processes and procedures to ensure they are in line with 6AMLD and keep up with evolving regulatory requirements. 

Adapting to 6AMLD

6AMLD brings with it a renewed focus on data as firms will need a much wider and substantive view of the financial crime risk landscape. One of the key requirements for obligated firms to stay ahead of the risk will be having access to the right data to satisfy their responsibilities under the legislation. 

While the wider risk landscape suggests that firms will need access to a broader range of data, it will also be important for these firms to also consider the quality and scope of data so that they can properly understand—not just know about—key risks. 

To do this, firms should look towards implementing configurable methods and processes for searching and analysing their data at speed. This will allow them to immediately respond to a wide range of financial crime risks and act sooner rather than later. 

In most cases, it is not the knowing and understanding of financial crime risks that firms tend to struggle with; it is frankly assessing their existing AML/CFT/KYC methods and processes and admitting that they might not be up to scratch. 

However, 6AMLD is a major development and firms should start thinking about how effectively they are meeting their obligations and whether their current processes are robust enough to meet new and future demands… there is no shame in imperfection, after all. Where shortcomings are identified, firms should think about whether automation and technology might be the right way forward. 

The Value of Technology

As the penalties for breaching AML/CFT regulations become more significant, many firms are finding that the best way to address their regulatory obligations is through the deployment of innovative tech solutions that leverage AI, machine learning, and cloud-based APIs to efficiently identify and properly categorise risks while eliminating false positives.

These agile technologies are helping firms to future-proof their AML/CFT processes and frameworks and stay ahead of the practical changes that developments in legislation like the AMLD series bring. 

Originally published June 1, 2021, updated November 18, 2021

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