The 5th Anti-Money Laundering Directive (5AMLD) launched on 10 January this year; 30 years on from the 1st AML Directive. This new legislation builds upon existing regulations to strengthen the EU’s AML rules; addressing developing issues and increased digitalization so that consumers and businesses are better protected.
The 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 digitalization of ID. So, wherever possible, organizations that need to comply with 5AMLD should be looking to use electronic verification solutions when undertaking customer due diligence.
This Electronic Identity Verification goes beyond replicating the old 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
The regulation requires financial institutions to closely examine the purpose and background of transactions. There is now 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 will require increased and more in-depth checks.
3. Changes to Ultimate Beneficial Ownership (UBO) lists
5AMLD has mandated 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 to now be made publicly accessible and, to facilitate cooperation, must be consistent at an EU level with a seamless exchange of information between member-state authorities. This will mean that member-states will need to strengthen their UBO verification mechanisms to ensure the information they carry is accurate and reliable. There also will be the introduction of separate UBO registers for bank accounts, but these lists will only be 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. Due to 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 will continue to build upon this requirement. The publicly available PEP lists will 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.
With 2019 seeing a record number of AML-related fines, totaling £6.2 billion with an average fine of £145 million1, it’s now more important than ever for financial institutions to be aware of their obligations and ensure that they are compliant.