There are just 364 days to go until 5MLD must be enacted by national regulations. In this post we will not examine whether the UK should or will be implementing such legislation! We will, however, discuss how 5MLD will impact customer on-boarding & customer due diligence.

The EU Fifth Anti-Money Laundering Directive brings significant changes to the requirements on regulated businesses “to better counter the financing of terrorism and to ensure increased transparency of financial transactions”

This poses the question as to why does 5MLD follow so closely on from 4MLD? Firstly, the risk landscape is constantly changing so the Risk-Based Approach demands that requirements for AML/KYC are also continually evolving. Secondly, the Panama papers and terror attacks on European cities are driving the appetite to further restrict the flow of capital to organised crime and terrorist funding.

The bottom line is that 5MLD brings new requirements which regulated firms transacting in Europe will need to adopt by January 10th 2020 at the latest.

National Register
Member states will be required to create a national register of beneficial ownership information on corporate and other legal entities, including trusts

  • Registers must be interconnected to the European central platform.
  • Public access will be granted for those individuals or organisations that demonstrate a legitimate interest in the beneficial ownership information.
  • Owners of any bank accounts and safe deposit boxes must be registered as well as information on real estate ownership, although the latter will only be accessible to public authorities.

Beneficial Ownership

  • Proof of registration or an excerpt of the register must be collected before starting a new business relationship with a corporate or other legal entity, or a trust or a legal arrangement having a structure or functions similar to trusts (“similar legal arrangement”) which are subject to the registration of beneficial ownership.
  • Apply CDD at appropriate times to existing customers on a risk-sensitive basis, or when the relevant circumstances of a customer change.
  • Continually monitor and update records based on shareholding and personal information changes.

How to get ahead and comply ahead of the deadline: HooYu Investigate enables firms to easily and quickly perform key KYB functions such as identifying parent & subsidiary companies, shareholders, directors and persons of significant control (PSC’s). See more here.

Decrease in threshold at which Customer Due Diligence must be performed
Prepaid card issuers will have to perform KYC on a greater % of their account holders as follows:

  • 4MLD permits that prepaid instruments funded with <€250 do not require CDD. 5MLD brings that threshold down to €150

PSPs will have to ensure that the customer has already been identified as follows:

  • Where a remote payment exceeds €50
  • On all remote payments 36 months after 5MLD came into effect

The UK prepaid industry was the subject of a thematic review by the FCA in late 2018 and received a glowing review of how firms embrace AML and CTF controls. See our blog post here on what KYC technologies prepaid operators are using.

How to get ahead and comply ahead of the deadline: HooYu Identify is a leading KYC and CDD tool that helps obliged entities to get the balance right between compliance & convenience. See more here.

High-Risk Third Countries

  • New minimum requirements for Enhanced Customer Due Diligence and reporting for transactions involving high-risk third countries.
  • Member states may stipulate that the first payment must be made via an account verifiable in the customer’s name.
  • Additional security measures must be taken when dealing with high-risk third countries, such as a ban on setting up subsidiaries in a high-risk third country or the introduction of more stringent external audits.

How to get ahead and comply ahead of the deadline: HooYu Identify has been designed to be used on Risk-Based approach, many of our clients scale up or scale down the scope of a HooYu request based on the risk they see in that origination or transaction, or customer interaction. To learn more about how to flex the level of KYC using HooYu Identify, please ask to speak to one of our customer on-boarding experts.

Several new types of businesses will fall into the scope of the regulation

  • Virtual Currency Exchange platforms (“VCEPs”) and Custodian Wallet Providers (“CWPs”).
  • Estate agents/intermediaries for rental properties of EUR 10,000 or more /month
  • Free ports and art dealers provided the value of the transactions exceed EUR 10,000, irrespective of the payment method.

Significantly increased exposure to penalties and sanctions for failing to perform customer due diligence processes

  • Financial Penalty – Fine of twice the benefit derived from the breach or EUR 1m. For credit and financial institutions, this is increased to EUR 5m or 10% of total annual turnover
  • Reputational Damage – Public statement about the breach
  • Business Continuity Impacted – Withdrawal or suspension of authorisation
  • Personal Responsibility – Temporary ban or EUR 5m fine against management
  • Warning – Order to desist from non-compliant conduct

If you want to know more about the implications of 5MLD and how HooYu can help you comply with current or future Customer Due Diligence requirements, please email david.pope@hooyu.com.

Check out our latest report

In our latest report, we share six key issues from 5MLD that will impact customer on-boarding and due diligence, download our report here to find out more.