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Compliance

The 5 Main Changes Made by the 5th AML Directive (5AMLD)

Posted on 14 Jan 2020

5th anti money laundering directive

The Fifth Anti-Money Laundering Directive (5AMLD) came into effect on the 10th January 2020 and serves to address new issues that have been exposed since the Fourth Anti-Money Laundering Directive which came into force back in 2017. It is a European Union (EU) legislation with the aim to strengthen the barriers in the battle against money laundering and terrorist financing. The directive notes that this new legislation is, in part, a response to the terror attacks that have happened within EU member states over the past few years namely in Britain, France and Belgium. It is worth noting that the 5AMLD has not made any changes to penalties that are in place for breaches, however, the scope of firms/individuals who will be caught by the regulation has widened.

This article will explore the 5 key elements of this new Anti-Money Laundering (AML) legislation:

1. Beneficial Ownership

The new regulation imposes greater transparency on the financial sector regarding beneficial ownership with a focus on the beneficial ownership of trusts. A firms data on beneficial owners will be made accessible to competent authorities (i.e. the FCA), and professional sector service providers, such as banks and others who can demonstrate a legitimate interest. The same information can be accessed by any member of the public without the need to demonstrate a legitimate interest. This puts further obstacles on a preferred method of money laundering globally as part of the Client Due Diligence process.

2. Extending the Scope

5AMLD extends AML/CFT obligations to new assets being managed such as:

  • Virtual Currencies:  increasing the scrutiny on virtual currencies and extending the scope of AML/CTF controls in 4MLD to virtual currency providers, to notably prevent anonymity. Anonymous safe deposit boxes will also no longer be allowed.
  • Art Traders: When dealing with high-value artwork that results in a transaction of €10,000 or more, art traders will have to report suspicious activity and perform checks on customers when necessary.

3. PEP (Politically Exposed Persons) Clarification

The Member States must issue a list of specific functions which qualify as “prominent public functions” to make sure individuals who are potential PEPs are identified for monitoring. The EU will then consolidate the lists from the Member States and publish the results keeping the individual’s identities anonymous.

4. Enhanced Due Diligence for High-Risk Third Countries

The EU currently maintains a list of High-Risk third countries, and when doing business with clients within these countries, parties are required to undertake enhanced due diligence measures. One of the new updates that the 5AMLD brings, is that any client that is based in a High-Risk country is now subject to compulsory enhanced due diligence measures, of which the 'relevant person' must undertake. These include obtaining information on the source of funds, background checks and beneficial ownership to name just a few. Member States may also prevent firms from opening branches or subsidiaries in high-risk third countries and prevent the opening of a branch or subsidiary of a firm based in a high-risk third country. 

This change aims to harmonise the rules concerning high-risk jurisdictions across the Member States. The EU hopes to ensure greater coordination and encouragement of firms to limit relationships with these countries. 

5. Prepaid Cards

The threshold for prepaid instruments (e-money & prepaid cards) subject to due diligence has been lowered from €250 to €150.

5AMLD and Laven

At Laven, our consultants are on hand to help identify the actions your firm needs to take to ensure you are compliant with new regulations and aware of all the risks outlined in this report. Whether this is through assisting with new policies and procedures that need to be put in place or providing online/in-person training for staff to make them fully aware of the regulatory burden.

Laven has also built Laven Tech, a unique Regulatory Technology (RegTech) solution that leverages advanced technology combined with our vast subject matter expertise. Our RegTech solution is designed to assist fund managers, service providers and investors to meet today’s growing demands.

If you would like to find out more, please fill out a contact form or give our London office a call on +44 (0)20 7838 0010.