All financial institutions and businesses, such as cryptocurrency, prepaid cards or e-money businesses, should be complying with the AML regulations, 4AMLD, whilst getting ready for the 5AMLD, as defined by JMLSG, to come into place in January 2020.
Money laundering sees an estimated $800 billion – $2 trillion globally each year being laundered, which is 2-5% of the global GDP .The UK’s National Crime Agency received a record number of money laundering reports in 2018 – a 10% increase on the previous year.
Choosing the right AML solution for your business is key to reducing your losses, but how?
What is the 5AMLD?
The aim of the new directive is to close down the financial means of criminals without preventing the functioning of payment systems and markets. Announced in April 2018, businesses were given an 18 month window to ensure that they have all of the checks necessary in place before the new directive comes into effect.
Changes that will be seen in the 5AMLD include regulating virtual currencies and pre-paid cards to prevent terrorist financing, improving safeguards for financial transactions to and from high risk countries, and ensuring centralised national bank and payment account registers or central data retrieval systems are accessible in all member states.
Financial institutions should have the necessary solutions in place by 10th January 2020 for the 5AMLD.
The Risks & Challenges
If your business has no AML checks in place when dealing with customers sending money between different places, there will inevitably be fraud or money laundering risks.
In order to reduce these risks, it’s key for businesses to be verifying their customers when they are looking to carry out financial transactions. Traditionally, these checks would be carried out using identity documentation, such as a passport or driving license. However, a customer may not have such documents on them at all times so this causes friction in the user journey and delays the transaction process, with the added risk of fake documents being used.
In our previous blog (found here), it is clear that fake identity documents are passing the verification stage of an application. This needs to be eliminated to mitigate the risk of impersonation fraud.
KYC (Know Your Customer) is another check that enables businesses to ensure they are preventing the risks of fraud and money laundering. These checks can enable you to gain a true understanding of your customer, whilst also checking other data sets such as PEPs & Sanctions databases.
Pre-paid cards and digital wallet businesses need to ensure that they are complying with AML rules, such as having thresholds in place for CDD checks. E-money is seen to pose money laundering risks because of the anonymity that could potentially provide an easy route for fraudsters or criminals to send money illegally.
The 5AMLD will see payments of €250 being reduced to €150 when asking for CDD checks, with the threshold being reduced to as low as €50 for some remote transactions.
By putting these CDD thresholds in place, alongside robust AML checks, will mean that these businesses will have higher levels of confidence in their customers allowing more ‘good’ transactions and payments to be made.
Under the 5AMLD, crypto wallets and crypto exchanges will also become regulated businesses. With the introduction of the 5AMLD, virtual currencies such as cryptocurrencies will officially have a legal definition.
Whilst many of these businesses do already carry out CDD checks and report any suspicious transaction activity, the 5AMLD will make it a legal requirement to do so.
Choosing an AML Solution Provider
AML rules require financial institutions to verify the identity of their customers – although there are no rules around how the CDD procedures should be carried out, businesses are looking to more secure and automated methods.
The JMLSG have suggested that using an electronic device to verify a user’s identity could be best practice.
With the risks and challenges in mind, businesses should be looking to providers who can enable them to eliminate all of the risks of fraud.
Implementing a solution that allows for a frictionless user journey, whilst ensuring a secure KYC and ID verification solution to mitigate the risk of impersonation fraud, is key.
Automating the process by utilising digital data (read our blog here), can prevent the risk of human error when carrying out manual verification checks such as allowing fake identity documents to pass verification checks.
How can Hello Soda help?
Our OCR technology solution, iDocufy, allows businesses to automate the verification process whilst accurately validating documents in under 5 seconds, producing a simple pass or fail for the document.
Get in touch today to learn more about how we can help your business to verify more good customers and reduce the risk of money laundering.
Stay ahead of the game, choose the right AML solution for your business and put it in place ahead of the 5AMLD.
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