The European Parliament recently published (here) the latest amended text of the proposed 4th Anti-Money Laundering Directive (AMLD IV), which includes measures to help simplify the way firms conduct KYC today, and adds weight to the KYC utility business model by requiring the industry to maintain accurate and timely data on beneficial ownership.
One of the most significant factors to ease implementation of the directive is the push for centralised registers of beneficial ownership, which have the potential to restructure the way firms gather and share this kind of information.
The directive specifies that: “With a view to enhancing transparency, specified locations, such as registries of legal entities, […] or other suitable mechanisms, including data retrieval systems… should be used for storing information on beneficial ownership.”
In order to keep those registries populated with accurate data, Member States will be charged with ensuring that corporate and other legal entities, now also including foundations, maintain accurate and current records on their beneficial ownership, and that this information is provided not only to competent authorities, but also “obliged entities.”
Identifying and verifying the beneficial owner of a counterparty to a transaction is a critical cornerstone of Know Your Customer (KYC) procedures in financial services. Understanding the ultimate owner is critical to a number of regulatory – as well as business – requirements such as anti-money laundering, anti-fraud, credit risk and tax evasion identification. Establishing a centralised register, or registers, therefore has the potential to cut costs in the millions for firms, and can provide an attractive commercial opportunity for data providers.
It’s not all good news, however. Drawing heavily on the extensive review of the 3rd Money Laundering Directive, as well as the 2012 FATF recommendation, AMLD IV gold-plates the FATF recommendations in a number of areas with the aim of tightening existing rules and increasing the scope of the risk based approach. Many were (and still are) concerned that the new rules were overly severe in their removal of a variety of exemptions and equivalence provisions. For many institutions the rules will mean a vast expansion in the number of clients now requiring documentation, due diligence checks and enhanced controls. See here for our coverage from last April.
Other aspects place a much larger emphasis on firms’ data privacy controls in the lead up to the hotly debated General Data Protection Regulation, currently scheduled for adoption towards the end of this year. Additionally, new provisions have opened up the scope for the introduction of BCBS principles on money laundering. The BCBS takes a much more technical approach to ensure that banks have the technological capabilities to combat money laundering.
The next step in the process for AMLD IV will be for the current Parliament to vote on the latest amendments, expected to happen later this month, with the trilogue process expected in the second half of the year (once the new Parliament is elected in May). Given that the directives have already been amended several times, there may well be areas still up for debate. And even once the trilogue process is concluded, national competent authorities will have a further year or so to transpose the directives into national regulations.
Even so, if the approach to storing and sharing more accurate beneficial ownership stays on track, money laundering reporting officers may see their jobs become easier, and industry service providers will see an opportunity to add more value.