The Fifth Anti Money Laundering Directive (5AMLD) was administered on January 10, 2020, to update on the regulatory regime applied under its predecessor, 4AMLD. It strengthens the European Union’s Anti-Money Laundering/Combating the Financing (AML/CFT) regime to inscribe several emergent and ongoing issues.

The impact of it has been far-reaching. Thus, in this article, we will discuss the fundamental changes brought by 5AMLD and understand the industry experts’ review on why they matter.

Key dates for 5MLD implementation

• January 10, 2020 – Setup beneficial ownership for corporates
• March 10, 2020 – Setup beneficial ownership for trusts
• September 10, 2020 – Setup automated and centralized mechanisms that enable identification of those who own or control bank accounts and payment accounts

1. E-Money & Prepaid Cards

The 4AMLD cut provisioned a monthly transaction limit on unidentified prepaid cards to €250 (a measure to target criminal financing). The 5AMLD established an even lower limit of €150. This amount also refers to the limit that can be saved on the cards. The limit implies that organizations will be required to perform identity checks on customers using prepaid cards funded with amounts higher than the limit. Furthermore, unidentified remote or online transactions are limited to €50.

Prepaid cards running outside the EU will be banned unless they were issued in a nation that sanctions legislation equivalent to the 5AMLD.

2. Ultimate Beneficial Ownership (UBO): UBO Registers of company ownership must be made publicly accessible

The 4AMLD was introduced in 2017 to focus on ultimate beneficial ownership (UBO) for money-laundering prevention and risk mitigation. 5AMLD was built to add on those following measures:

• UBO lists that are formed under 4AMLD are to be publicly available within 18 months of 5AMLD’s implementation date.
• Trusts (or any similar arrangement) need to observe beneficial ownership regulations and report information to authorities.
• UBO national registers need to be interconnected at an EU level to aid cooperation among member-state authorities.
• Member states must strengthen their UBO verification tools.
• Member states must submit separate UBO registers for bank accounts: unlike company UBO registers, it will only be accessible for authorities.

3. EDD for transactions in High-Risk Third Countries

Businesses involving customers from high-risk third nations are under the 5AMLD. These companies are obligated to conduct enhanced due diligence measures that address the money laundering risks and the deficiencies in those nations’ AML protections law.

The measures require companies to:

• Gather information on customers and UBO, including the purpose of proposed transactions and the source of wealth.
• Obtain permission before establishing business relations with high-risk third nations.
• Report details involving them to senior management.
• Raise controls over specific business transactions and relations that may require additional inspection.

4. Clarification of Politically Exposed Persons (PEPs)

5AMLD necessitates EU member nations to compose and publicly release a functional PEP list of politically prominent public functions. This provision extends to authorized international organizations: the EU is also required to release an EU-level version of the list.

Functional PEP lists are unique, and so can require explanation. The list formed will highlight the positions that are politically exposed but will not identify the person fulfilling the function though it changes periodically. These lists are intended to make it easier for smaller compliance teams to recognize the PEPs that they should be monitoring and screening against for ongoing changes to risk.

5. High-Value Goods

For the first time, the directive explicitly singles out high-value works of art by employing AML checks to every art transaction of €10,000 or higher. The 5th AMLD extends the scope of legislation considering the other stores of value. For example, art traders or those acting as mediators will now have AML/CFT reporting duties and will also have to conduct due diligence procedures on their customers.  Additionally, the scope of this directive is not restricted to art. Transactions involving a range of high-value goods such as tobacco, oil, and precious metals, are estimated at greater risk. Notably, archaeological, historical, and cultural artifacts are covered in this regulation – as a move to target funding for terrorist groups.

6. Virtual Currencies / Cryptocurrency Exchanges

Although much of 5AMLDs content is an update on the 4AMLD, it creates a notable legislative step in the practice of virtual currencies. According to the introduced 5AMLD, the law will:

• Improve transparency about who owns legal entities to counter money laundering and terrorist financing via opaque structures.
• Give better access to information to European financial regulators via centralized bank account registers.
• Tackle anonymous use of virtual currencies and prepaid instruments.
• Improve the collaboration and exchange of information between the European Central Bank and anti-money laundering supervisors.
• Ensure a high level of safeguards for processing money to and from high-risk third countries and extend the standards for assessing them.
• Proposes regulation for providers of cryptocurrency exchanges and wallets – to be registered with the authorities competent in their nation such as the Financial Conduct Authority for the UK and BaFin for Germany.

Additionally, with the passing of 5AMLD, many European crypto companies are struggling to meet the new regulatory guidelines. Several businesses are shutting down due to the KYC and anti-money AML practices the new law calls for. Such as Bottle Pay, the UK-based crypto wallet provider, announced to cease operations.

Conclusion

Entities subject to AML/CFT obligations should evaluate their compliance arrangements and strengthen their KYC policies to fit the standards imposed by national legislators in their respective nations. Failure to comply may result in penalties and enforcement actions imposed by responsible authorities, i.e., national regulators.

To ensure compliance with 5AMLD now is the time to start looking at your obligations. InfrasoftTech offers solutions that can be used across financial services to create strategies, workflows, and systems that are adaptable, compliant, and scalable to serve your business in effect with 5AMLD.

To find out more, request a demo today!