New Anti-Money Laundering regulations come into effect on 10th January 2020, by which point all regulated entities in the EU must comply.
In this blog we’ll tell you what you need to know, and how we can get you KYB ready.
What’s it all about?
The Fifth Anti-Money Laundering Directive (5AMLD or AML5) is designed to better counter the financing of terrorism and increase transparency in financial transactions.
AML5 is the successor to AML4 and comes into effect on 10 January 2020, when all regulated entities in the EU must comply with this new directive.
What was AML4?
AML4 (or 4AMLD) was AML5’s predecessor. It came into affect in June 2017 and took a risk-based approach to anti-money laundering.
It extended the scope of Customer Due Diligence (CDD) checks, introduced the concept of domestic PEPs (Politically Exposed Persons), introduced the creation of central registrars of beneficial ownership, and extended the scope of AML checks to majority owned subsidiaries outside the EU.
What will AML5 do?
- Enhance EU Financial Intelligence Units’ powers while increasing transparency around company/trust ownership using beneficial ownership registers
- Prevent risks surrounding the use of virtual currencies for terrorist financing
- Limit the use of prepaid cards
- Improve the safeguards for financial transactions with high-risk third countries
- Enhance access to information for Financial Intelligence Units, including centralised bank account registers
- Ensure centralised national bank and payment account registers or central data retrieval systems in all member states
What’s going to change?
For existing regulated businesses, the changes focus on three areas:
1) Beneficial ownership
2) High-risk third countries
3) Politically exposed persons (PEPs)
The beneficial owner of a company/trust is the person(s) who directly (or indirectly) ultimately owns or controls it.
Under AML5 EU member states must create national registers of beneficial ownership to improve transparency (the UK is already compliant). Anyone with a ‘legitimate interest’ will be able to access a register. Regulated entities must report discrepancies they find in records of beneficial ownership
Corporate and trust registers must be connected to the European central platform for data sharing and verification. The identities of senior managing officials must be verified when the beneficial owner of a corporate organisation cannot be established.
Bank and payment account owners must be registered, along with safety deposit box holders. Financial Intelligence Units will have access to account registers, but they won’t be publicly available. Financial Intelligence Units must be able to identify the beneficial owners of virtual currencies.
Information on real estate ownership must be registered and made accessible to public authorities.
CDD checks must be carried out on existing customers when risk changes or beneficial ownership is reviewed.
High risk third countries
New criteria for risk assessment will apply to countries with sub-optimal AML regulations. Enhanced due diligence will be required around beneficial ownership and the reasons for transactions.
Politically exposed persons (PEPs)
Each EU member state must produce a functional and public PEP list featuring the exact functions which qualify as prominent public functions. The EU will also release a union-wide version of the list.
New businesses subject to CDD
CDD checks have been extended to products that were out of scope under 4AMLD.
Electronic money products like prepaid cards will no longer be anonymous, except when used in a shop for purchases under EUR 150 or online for purchases under EUR 50. An overall limit of EUR 150 applies to the product. If the product is issued in a non-EU country, the country must impose requirements similar to AML5.
Virtual currency platforms (wallets and exchanges) must verify the identity of customers when the business relationship is established.
Estate agents and intermediaries for rental properties of EUR 10,000 or more per month, and art dealers (and other traders in high value items) where the transaction value exceeds EUR 10,000 are subject to CDD.
What this means for your business
You should review the impact of the changes around beneficial ownership on your business. Additional checks on individuals may be required to establish beneficial ownership. You’ll need to re-verify customers when their risk changes. And full identity and AML checks must be undertaken for customers who were previously out of scope of the regulations.
How Hello Soda can help
We can help you verify beneficial owner identity (now anyone with a significant share in the business) through our suite of smart IDV solutions that are all available via our single API.
As well as that, we provide PEPs & Sanctions Checks using PepCheck, and enable business address verification through UtilityConnect. This range of KYB solutions means you’ll be more than ready for the AML5 deadline. You can find out more here.
And you can also get in touch to ask any questions here.