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            A Mandate for Regtech: The 5th Anti-Money Laundering Directive

            The 3 Pillars of AML Compliance
            The 3 Pillars of AML Compliance
            August 20, 2019
            If You Think Compliance Is Expensive... Try Non- Compliance.
            If You Think Compliance Is Expensive… Try Non- Compliance.
            September 12, 2019
            The 3 Pillars of AML Compliance
            The 3 Pillars of AML Compliance
            August 20, 2019
            If You Think Compliance Is Expensive... Try Non- Compliance.
            If You Think Compliance Is Expensive… Try Non- Compliance.
            September 12, 2019

            Provision for Electronic Verification and Data-Driven Checks.

            The 5th AMLD is to come into effect in the UK, January 2020. Yes, Brexit is looming, but the UK has already committed to implementing this directive or similar to maintain its position as a major, international leader in the fight against financial fraud.
            Key Practicalities

            1. Online Identification Solutions

            Accurate identification and verification of data of natural and legal persons are essential for fighting money laundering or terrorist financing…

            “Member states shall ensure that obliged entities to which the customer is referred take adequate steps to ensure that the third party provides immediately, upon request, relevant copies of identification and verification data, including, where available, data obtained through electronic identification means…”

            This directive stipulates a need whenever possible to use electronic client verification solutions when undertaking Customer Due Diligence obligations and KYC procedures.

            Benefits of Electronic Identity Verification:

            • Quicker onboarding of new clients through instant results
            • Improves Customer experience
            • Maintains Compliance
            • Security and Reliability

            Rather than an alternative or supplement to traditional, paper-bound verification methods, regtech is transforming and will dominate the compliance industry.

            2. Enhanced Due Diligence

            “When dealing with such cases of high-risk and with such business relationships or transactions, member states should require obligated entities to apply enhanced customer due diligence measures to manage and mitigate those risks…”

            The 4th AMLD obliged professionals to apply EDD to transactions for example that had no apparent legal or economic purpose, were complex or unusually large or demonstrated unusual patterns.

            The 5th AMLD will require professionals to examine more closely the purpose and background of a wider selection of transactions. It prescribes extra customer due diligent measures for business relationships and transactions involving high-risk third countries.

            Recommended Enhanced Due Diligence Measures:

            • Obtaining additional information on the customer and on the beneficial owner/s
            • Obtaining additional information of the intended nature of the business relationship
            • Obtaining information on the source of funds and source of wealth of the customer and the beneficial owner/s
            • Obtaining information on the reasons for the intended or performed transactions
            • Obtaining the approval of senior management for establishing or containing the business relationship
            • Conducting enhanced monitoring of the business relationship by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination

            Sound reasonably familiar? Such enhanced due diligence measures are already in place for those such as PEP’s where extra care is taken in the monitoring of their financial transactions.

            On a practical level, companies subject to the 5th AMLD MUST consider if incoming business or existing business relationships with clients in high-risk jurisdictions will require further CDD. The EU will provide a list of high-risk third countries where you will be required to then carry out EDD.

            3. Ultimate Beneficial Ownership (UBO)

            “The need for accurate and up-to-date information on the beneficial owner is a key factor in tracing criminals who might otherwise be able to hide their identity behind a corporate structure.”

            Complex organisational hierarchies can make it easy to obscure the identities of UBO and allow financial fraud to flourish. Therefore, this directive mandates the necessity of establishing the true owners of entities before engaging in any business relationship or transaction.

            This directive requires that beneficial ownership is registered and that UBO lists are made accessible to the public.

            4. Up-to-date Politically Exposed Persons (PEP) list

            “Lists should be issued…indicating the specific functions which…qualify as prominent public functions”

            This directive requires a clarification of PEP. The list released will feature the name of positions that are widely considered as ‘politically exposed’ but will not name any individual or person fulfilling the function.

            Other Important Factors

            • Pre-paid cards threshold reduced to €150
            • Cryptocurrency transactions subject to customer due diligence and KYC procedures

            Get ready for the implementation of the 5th AMLD directive and ensure your compliance methods remain robust and efficient
            by signing up to Veriphy’s electronic AML and KYC solutions.

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