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The EU’s Fifth Anti-money Laundering Directive (or 5MLD) came into force on January 10th 2020 in all member countries. While much of the content in this updated directive built on recommendations already made in 4MLD, there were several important changes that have proven to be especially impactful. We’ve outlined the main takeaways in further detail below.
While virtual currencies hadn’t been a key focus in the EU’s previous money laundering directives, 5MLD changed that. It brought in several new measures to tighten the regulation of cryptocurrencies and the products that accompany them. Here are the key updates to be aware of:
5MLD introduced a new legal definition of cryptocurrency, for consistency on precisely what constitutes virtual currency.
Cryptocurrencies and marketplaces are now subjected to all the same AML regulations as conventional cash, and must adopt the same AML compliance measures – like KYC checks and customer due diligence.
In an effort to tackle the trend of cryptocurrency being owned and traded anonymously, 5MLD gave Financial Intelligence Units the power to request the names and addresses of anyone with virtual currency.
5MLD stated that all providers of cryptocurrency and platforms for cryptocurrency exchanges must be registered with the relevant regulatory body – which in the UK is the Financial Conduct Authority.
In June 2017, 4MLD set a limit of €250 on the value of anonymous prepaid cards, to make it more difficult for financial crime like terrorist financing to take place. However, 5MLD decreased this limit further to just €150. This cap applies to balance top-ups too, so no more than €150 can be stored on any anonymously prepaid card at one time.
If a customer is using a prepaid card with a balance over this value, firms are required to carry out an ID check before accepting their payment. On top of this, the fifth money laundering directive capped all anonymous online or remote transactions at €50, to make it harder for the proceeds of financial crime to be circulated.
5MLD also effectively banned the use of any prepaid cards issued outside the UK, unless they come from a country with AML regulationssimilar to those in the EU.
Another significant change the 5thAML directive brought in is the application of AML regulations to any firm or individual that trades in high value goods. This measure was specifically designed to try and block the covert funding of terrorist activity.
So, since 5MLD came into force, every dealer or company that trades in the below goods has been obliged to carry out the same AML checks as any other business in the regulated sector:
Art traders, dealing in transactions of €10,000 or over
Precious metals
Antiques
Luxury cars
Oil
Tobacco
Weapons
Cultural or historical artifacts
In 4MLD, there was a lot of emphasis on the importance of establishing the identity of any ultimate beneficial owners within a business or organisation. This fourth money laundering directive made it compulsory for every member country to draw up a centralised registry for all known UBOs. However, 5MLD brought in further legislation for the recording of UBOs:
These central UBO lists were to be made accessible to the public. Participating countries had a time limit of 18 months from January 2020 to put these changes in place.
UBO regulations were extended to include financial trusts, who had to disclose their ultimate beneficial owners.
All member countries were asked to review and generally reinforce their UBO identification methods, to reduce risk and improve accuracy.
Member countries were advised to set up separate UBO lists for bank accounts – but these weren’t required to be public.
5MLD also stated that national UBO lists should be easily accessible to other EU countries, to try and encourage cooperation.
Whatever kind of company you run, it’s crucial that your AML compliance measures are updated to reflect the changes in regulation which 5MLD brought to the table. To comply with 5MLD, you might consider doing the following:
Reinforce your existing risk-based approach and make alterations wherever necessary.
Strengthen your customer due diligence process, for quick, reliable results and maximum accuracy.
Perform EIDV on businesses, with UBO checks and registers in place to identify and record any ultimate beneficial owners early on.
Carry out ongoing monitoring for all your clients and customers, in case of a change in status.
Implement enhanced due diligence for any higher risk clients or customers.
Make sure your records management is compliant with both GDPR and 5MLD.
Using a third-party like SmartSearch is the easiest way to ensure you’ve checked all of these compliance boxes. We keep on top of all the latest changes in AML regulation, and alter our services accordingly, so you can get back to business.
SmartSearch is an end-to-end AML platform, which takes care of every aspect of your compliance – from KYC checks through to ongoing monitoring. We use the Dow Jones Watchlist to secure the most accurate results possible when it comes to AML checks. Whether you’re verifying an individual or business, in the UK or overseas, SmartSearch gives you a clear pass or fail result in seconds, and automatically triggers enhanced due diligence for any matches with sanctions lists, PEP lists or UBO registers.
