RegTech Intelligence 
On 19th April 2018, the European Commission, the European Parliament and the Council of the European Union agreed adopted, in plenary, the amendment of the Fourth EU Anti Money Laundering Directive (Fifth EU Anti Money Laundering Directive (AMLD V)). The revised directive concludes two years of negotiations between several stakeholders; and looks to strengthen the AML framework in the EU to prevent illegal financial dealings like those uncovered in the “Panama Papers” during 2016.
Among the key amendments to the Directive, the following are due to have a significant impact on the operational workflows of financial institutions:
| Area | AMLD V | Impact |
|
Data collection and processing |
► Public access to national registers of beneficial owners of companies operating in the EU, including subsequent interconnection of national registers
► Public authorities must have access to information on real estate ownership. By 2021, the Commission will assess the necessity of interconnecting these across national registrars. |
► Firms will have to re-assess the information available in KYC records and ensure there are no gaps in data.
► Formalised processes to obtain, record and update beneficial ownership information should be developed. |
|
Controls |
► Self-regulating organisations must report on suspicious transaction reports, suspicious transaction reports forwarded to the Financial Intelligence Unit (FIU), violations of the Anti-Money Laundering Directive and sanctions imposed
► Protection of whistleblowers who report money laundering from discrimination in the workplace and protection of their identity |
► As member states FIUs will have to request information from any obliged entity, firms must ensure that they have effective mechanisms to coordinate information gathering and sending in a timely manner |
| Risk assessment and mitigation | ► Tougher criteria for assessing third countries with an increased risk of money laundering (availability of information on beneficial owners, possibility of sanctions against violations of money laundering rules and obligation to report suspicious transactions)
► On risks linked to prepaid cards, the threshold for identifying the holders of prepaid cards is lowered from €250 to €150 |
► Firms should review and prepare to adopt revised list of the EU’s high risk third countries into KYC processes.
► Risk methodologies may require updating and may necessitate assessment and modifications to reflect more granular checks on prepaid cards |
| Customer Due Diligence | ► Extending the scope of the Anti-Money Laundering Directive to cover all forms of tax advisory services, letting agents, freeports, art dealers, electronic wallet providers and virtual currency exchange service providers
► If the actual beneficial owner of a company cannot be identified and only the managing director is known, this must be indicated in the beneficial ownership register. |
► Any provider of exchange services between virtual currencies, fiat currencies and custodian wallets will need to implement internal AMLD processes
|
The timetable for the transposition of AMLD V is as follows:
- Expected publication in the Official Journal of the EU is expected later in June 2018
- The amended Directed is expected to enter into force 18 months after publication, with expected go-live date at the end of 2019
- National registrars of business owners are due to be open to the public at the end of 2019
- National registrars of trust owners to persons with a legitimate interest are due to be open early 2020 (20 months after publications)
- European-wide interconnection of national registers across borders is due to go-live during early 2021 (32 months after publication)
Whilst the revised rules will substantially improve the existing rules, effectively fighting financial crime will need proper implementation and coordination amongst several market participants. There is a lot to gain. A recent survey report by Thomson Reuters estimates that the total aggregated loss of turnover from financial crime activities sits at around $1.45 trillion. Meanwhile, Latvian banking watchdog (FCMC) announced last Friday that it has imposed a €455,822 fine on AS “Meridian Trade Bank” for breaches in EU anti-money laundering rules – yet another example where failure to have the appropriate governance framework, rather than the act of laundering itself, is the cause of the breach.
More has to be done by firms to cut down the cost of compliance, whilst ensuring that all controls are robust and operating effectively. On 21 June 2018, JWG’s Client Management Special Interest Group (CMS) will look to focus on the Fifth EU Anti Money Laundering Directive (AMLD V). Come discuss with peers in Central London (venue TBC) the key changes and how they impact firms including risk assessment criteria; beneficial owner registries; and, improved checks on third countries.
CMS has been running for over a year with major sell and buy side firms, it aims to develop a common understanding of how to approach the implementation of KYC/AML requirements by developing standardised workflows which are granular enough to take into account semantic requirements, jurisdictional differences, and size and risk of business.
JWG run all of our special interest groups at no charge for senior managers at investment firms, however space is limited so please email cms@jwg-it.eu to confirm your registration and seat.