LexisNexis® Risk Solutions, the global analytics provider, is today reacting to the European Commission’s announcement that it is preparing to clamp down on those countries who have failed to implement the 5th Anti-Money Laundering Directive (5MLD), by issuing a guide to help firms comply with new rules.
LexisNexis Risk Solutions recognises that many firms have struggled to implement the new requirements of 5MLD which came into force on 10th January 2020. Due to both time pressures, and the lack of understanding around the new rules and what they entail. To help compliance teams safeguard their business, and avoid hefty fines from the regulator for non-compliance, LexisNexis Risk Solutions’ guide outlines the changes introduced by 5MLD and how they can ensure they meet the required standards.
Prompted by events including the Panama Papers leaks, increased money laundering risks of cryptocurrencies and significant changes to the nature and frequency of terrorist attacks, the EU is cracking down on money laundering and terrorist financing with 5MLD.
In light of widespread non-compliance, the European Commission is currently planning to launch infringement procedures next month to ensure that all countries and companies are implementing and complying with the new rules. Therefore, LexisNexis Risk Solutions guide outlines key areas of the Directive that businesses must account for in order to comply with new rules:
- Obliged entities: 5MLD has extended the scope of sectors classed as ‘obliged entities’ to include virtual assets such as cryptocurrencies, virtual asset service providers such as digital wallets, and high-value art traders. These newly regulated sectors will need to implement full AML and counter-terrorist financing controls, to meet their new obligations.
- Politically Exposed Persons (PEPs): Member states will be required to maintain an up-to-date list of prominent functions that qualify as politically exposed persons in their respective countries. Key to maintaining compliance will be ensuring that the lists used for screening contain the holders of these functions for each state and are accurate, complete, up to date, and conform to Financial Action Task Force guidelines. Firms will also potentially face changes from currently used PEP definitions.
- Beneficial owners: Member states will be required to maintain registers of beneficial owners of corporate and other legal entities. Ownership information will need to be made public to those with ‘legitimate interest’ and must be accurate and verifiable.
- Customer due diligence: Where possible, 5MLD mandates that firms should be using electronic verification in their due diligence processes.
- Enhanced due diligence: To safeguard transactions that involve high-risk countries with weak anti-money laundering controls, 5MLD mandates a common interpretation of enhanced due diligence measures which entities must follow.
- Prepaid cards: Cardholders will need to be identified, and customer due diligence conducted for any prepaid card that has a value of €150 (€50 if the card is purchased remotely), lower than the previous value of €250.
- Enhanced powers for FIUs: Financial Intelligence Units will have the authority to obtain a firm’s payment transaction registers and electronic data, even when a Suspicious Activity Report has not been filed.
Michael Harris, Director, Financial Crime Compliance and Reputational Risk at LexisNexis® Risk Solutions says:
“Underground financial crime networks are one of the most insidious threats we face today. With such a broad financial landscape, criminals have more channels than ever to exploit and abuse, resulting in greater risks to society. 5MLD seeks to mitigate some of these risks and bring together firms in all EU jurisdictions to work towards a common goal of reducing financial crime – and it’s clear that the EU is committed to reaching this goal.
Until now, digital currencies have been unchartered waters for regulators. Greater controls are welcome, and organisations need to take all necessary precautions to become compliant ahead of January. Failure to comply will have wide-reaching ramifications, both for organisations and society, so firms must leave no stone unturned when it comes to meeting the obligations of 5MLD. We also fully expect that further regulatory updates will quickly follow – we’re not done yet.”