On January 10th, 2020, EU Member States, including the UK, enacted the Fifth Money Laundering Directive (5MLD) into national regulations. How will the updated anti-money laundering (AML) rules impact customer on-boarding & customer due diligence?
5MLD brings significant changes to the AML requirements on regulated businesses “to better counter the financing of terrorism and to ensure increased transparency of financial transactions”.
Accordingly, this poses the question as to why 5MLD follows so closely on from 4MLD? Firstly, the risk landscape is constantly changing so the Risk-Based-Approach demands that requirements for AML/KYC continually evolve. Secondly, the Panama Papers are driving the appetite to restrict capital flows to organised crime / terrorist funding. Equally, terror attacks on European cities are having a similar effect. Therefore, the bottom line is that 5MLD brings new AML requirements that regulated firms transacting in Europe must adopt by January 10th, 2020.
- Member states are to create a national register of beneficial ownership information on corporate and other legal entities, including trusts.
- Registers must connect to the European central platform.
- Grant public access to individuals or organisations that demonstrate a legitimate interest in the beneficial ownership information.
- Make Information on real estate ownership accessible to public authorities.
- Owners of any bank accounts and safe deposit boxes must be registered.
- Proof of registration or an excerpt of the register must be collected. This must be before starting a new business relationship with corporates, trusts or similar legal entities and arrangements which shall require the registration of beneficial ownership.
- Apply CDD at appropriate times to existing customers on a risk-sensitive basis, or when the relevant circumstances of a customer change.
- Continually monitor and update records based on shareholding and personal information changes.
High Risk Third Countries
- Similarly, there will be new minimum AML requirements for Enhanced Customer Due Diligence and reporting for transactions involving high-risk third countries.
- Member states may therefore stipulate that the first payment is via an account verifiable in the customer’s name.
- Further security measures to apply when dealing with high-risk third countries. For instance, a ban on setting up subsidiaries in a high-risk third country or the introduction of more stringent external audits.
New types of businesses in AML CDD scope
- Virtual Currency Exchange platforms (“VCEPs”) and Custodian Wallet Providers (“CWPs”).
- Estate agents/intermediaries for rental properties of EUR 10,000 or more /month.
- Free ports and art dealers provided the value of the transactions exceed EUR 10,000, irrespective of the payment method.
Significantly increased AML penalties
Furthermore, there will be increased penalties including:
- Financial Penalty – Fine of twice the benefit derived from the breach or EUR 1m. In the case of credit and financial institutions, this is increased to EUR 5m or 10% of total annual turnover.
- Reputational Damage – Public statement about the breach.
- Business Continuity Impacted – Withdrawal or suspension of authorisation.
- Personal Responsibility – Temporary ban or EUR 5m fine against management.
- Warning – Order to desist from non-compliant conduct.
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