Nida Rahimi-Naeem
What is 5AMLD and what does it mean for financial institutions?
The 5th Anti-Money Laundering Directive (5AMLD) updates the EU’s anti-money laundering (AML) and counter-terrorism funding (CFT) policies.
Launched on 10 January 2020, 30 years on from the 1st AML Directive, the 5th Anti-Money Laundering Directive builds upon existing regulations to strengthen the EU’s anti-money laundering (AML) rules; addressing developing issues and increased digitalisation so that consumers and businesses are better protected.
What does 5AMLD mean for financial institutions?
There are four key points of 5AMLD that financial institutions need to be aware of:
1. Increased emphasis on online identification
5AMLD acknowledges that there is now a greater digitalisation of ID. So, wherever possible, organisations that need to comply with 5AMLD should look to use electronic verification solutions when undertaking customer due diligence.
This Electronic Identity Verification goes beyond replicating paper-based verification processes as it combines information about the individual, their physical features, the documents they possess, and the devices they use in order to provide an accurate image of an individual and the transactions they are involved in.
2. Enhancing due diligence requirements
5AMLD requires financial institutions to closely examine the purpose and background of transactions. There is a greater expectation that there will be enhanced due diligence conducted when handling transactions from flagged high-risk countries. Money being moved from a country deemed to be ‘high-risk’ (due to ineffective anti-money regulations and due diligence requirements) to the EU requires increased and more in-depth checks.
3. Changes to Ultimate Beneficial Ownership (UBO) lists
5AMLD mandates that, to combat financial fraud, it is necessary to establish who the true owners of an entity are before engaging in any business relationship or transaction.
These UBO lists (that were initially drawn up under 4AMLD) are publicly accessible and, to facilitate cooperation, must be consistent at an EU level with a seamless exchange of information between member-state authorities. This means that member-states need to strengthen their UBO verification mechanisms to ensure the information they carry is accurate and reliable. There are also separate UBO registers for bank accounts, but these lists are only accessible by authorities.
4. Expanding Politically Exposed Persons (PEP) lists
PEPs are considered higher risk individuals because they are more likely to be exposed to bribery and corruption due to their position. Because of this potential vulnerability, AML regulations usually require enhanced customer due diligence for these individuals.
4AMLD began the process of creating lists of PEPs and 5AMLD continues to build upon this requirement. The publicly available PEP lists feature the name of positions that are widely considered as ‘politically exposed’ so that compliance teams can identify the PEPs that they should be screening and monitoring.
Discover how CUBE solves AML challenges:
