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Time to prepare for the Fifth Anti-Money Laundering Directive

Hot on the heels of the Fourth Anti-Money Laundering Directive (4AMLD), the fifth version (5AMLD) is set to become law throughout the EU on 10 January 2020. With a focus on strengthening transparency rules, this mandate will further deter the concealment of funds and enable the EU to remain one step ahead in the fight against financial crime.

5AMLD demands new obligations from those in financial services. Data quality is of utmost importance. And tools for validating and verifying identities – including operations such as electronic identity verification, document verification, biometrics and liveness tests, and much more – play an important role in this effort. Is your regulated business ready for this new directive?

Cryptocurrency regulated

Cryptocurrencies are set to face the same regulations that have applied to financial institutions under 4AMLD, including combatting the financing of terrorism (CFT) and money laundering. This requires cryptocurrency exchanges to perform customer due diligence and submit ‘suspicious activity’ reports. Also, the anonymity associated with virtual currencies will be no more with EU Financial Intelligence Units (FIU) now required to obtain the addresses and identities of those who own this currency.

KYC for prepaid cards and remote payments

Initially, 5AMLD requires payment companies to carry out checks on customers using cards funded with more than €150, down from €250 under 4AMLD, along with payment service providers ensuring that those authorising a remote payment over €50 are identified. However, in three years, KYC (Know Your Customer) validation will be required for all remote payments, and prepaid cards issued outside the EU will face prohibition unless issued from a country that enforces legislation equivalent to the EU’s Anti-Money Laundering (AML), CFT and KYC standards.

Focus on ‘know your business’

5AMLD is very much about ‘know your business’ as the EU cracks down on companies used as a front for money laundering. While regulated businesses are obliged to perform checks on their customers for KYC purposes, they will need to implement checks on the businesses they trade with too.

This requires EU member states to set up a national register of beneficial ownership information on businesses, including trusts and holders of safe-deposit boxes, to share with other members. Records must include information on those with a 25 per cent stake or more in the company, in case an individual may be using a business they partly or wholly own for illegal activities. This information will also be available to the public.

In the age of 5AMLD it’s up to regulated businesses to obtain the proof of company registration or an excerpt from the register to identify and verify the organisations’ ultimate beneficial owners before starting a new business relationship.

Risky countries

Those states that are identified by the EU as risky, because they don’t have stringent regulations on AML and KYC, require increased checks on the financial flows from them into the EU. Regulated organisations must have access to the EU’s list of these countries and update their due diligence processes to ensure compliance.

Consequences of non-compliance

A huge issue for those that fail to comply with 5AMLD will be the brand damage caused by the negative publicity surrounding the sanctions they face. This can include fines of up to €5 million or ten per cent of annual turnover. Furthermore, there are consequences for management; these individuals could be banned from running a regulated business, with the organisation possibly prevented from trading as a result of compliance violations.

Smart data quality = compliance

The expense of compliance to the new law is a real worry for many of those in financial services, with nearly two thirds of firms surveyed by Thomson Reuters in 2018 expecting their total compliance budget to be slightly or significantly more over the next 12 months. However, having easy access to a single global source of up-to-date data for ID verification, one that also helps to maintain data quality, is the best way to lessen the burden and help ensure compliance.

This approach enables seamless access to billions of up-to-date records worldwide for verification of passports, driver licences and ID cards, and confirmation of vital proof of address, along with checks against current watch lists, such as politically exposed persons. Of equal importance, the customer onboarding process and strong customer experience are protected as the checks leveraging this data take place in real-time, even during sophisticated operations such as biometric validation and liveness tests.

5AMLD requires those in financial services to adequately know their customers, whether they are a consumer or a business, which has a huge impact on how they conduct due diligence and onboard new customers. Is your regulated business ready?

 

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