5AMLD, the regulation you shouldn’t ignore

The 5th Money Laundering Directive- 5AMLD came to fruition on 9 July 2019 and was adapted into Member States National law on the 10 January 2020. This directive takes a step further from 4AMLD and plans to increase transparency in all financial transactions to combat money laundering by removing any mask of anonymity and reducing the scope for financial crime.

Cryptocurrency needs to become AML/CTF compliant

A significant step towards regulating and lessening the risk of money laundering, terrorist financing, tax evasion, and financial crime has been taken. 5AMLD will be the first EU law that will be directed at monitoring digital currencies.

In a decentralised crypto world, there is a fine line when balancing privacy and legality. 5AMLD will ensure that AML/KYC practises will become an integral component in ensuring safe, transparent, digital transactions can occur.

Crypto currencies will have to abide by the same CFT/AML regulations applied to financial institutions under 4AMLD. This will result in a need to perform customer due to diligence and submit any suspicious activity reports., should they be required. Financial Intelligence Units (FIU) may be asked to be provided to the authorities in charge, in order to obtain the addresses and identities of owners of virtual currency to combat the anonymity associated with the use of cryptocurrency. Currently, it is estimated that only a third of businesses across Europe and the US conduct background checks on their users, which indicates the large need for AML/KYC compliance practises.

Crypto currency providers are not the only crypto players that need to come to the 5AMLD party. E wallet providers will need to be registered and regulated and AML practices such as CDD, KYC, and transaction monitoring will need to become a daily practise. All players in the crypto world will have to abide by the regulation, which suggests countries will need to track crypto users who will also have to submit self declaration forms.

The crypto world will need to comply with this directive by adopting reliable KYC/AML/Customer Due Diligence and financial crime control strategies. This will prove to be a herculean task as there will be several issues getting a once anonymous platform to comply with AML laws. The adoption and implementation of KYC/AML practise into the crypto world will require an innovative workforce to implement the necessary change and to do so fast. Many feel that this however law enforcement will be clamping down on those who are not compliant.

How does 5AMLD fit into a decentralised world?

Many have questions surrounding how this will become a reality in the crypto community and 2020 has seen an influx of crypto companies moving their organisations outside the EU as they fear this new law will have serious adverse impacts in their businesses.

Traditional prepaid cards will have to be registered

4AMLD saw a transaction limit of €250 which will now be changed to €150 – to try and stop terrorist financing. Identity checks will now be required to be implemented by firms on all customers topping up their prepaid cards over €150. Prepaid cards outside the EU will not be used unless they have been issued in a region that has the same KYC/AML standards as 5AMLD. Parties who make use of prepaid cards will now need to put processes in place that deny transactions between non EU parties. This transition will mean that firms need to revoke their existing procedures and policies and ensure that new systems are put into place.

High Risk third countries

Organizations that deal with countries in high risk areas are now required to conduct due diligence highlighting any weaknesses the territories AML regulations may have to ensure money laundering is not likely to occur. Organisations will have to dedicate further resources when conducting due diligence reporting. The obtainment of customers UBO and transaction details as well as approval from senior management in order to continue working with those in high risk areas, and identifying which accounts need further investigation.

Beneficial Ownership

Organisations will have increased pressure to ensure more stringent UBO requirements will be implemented.

PEP Lists

Member sates will be required to draft a list of PEPs nationally, which will be consolidated with a list developed by the EU. PEPs will require advances due diligence to ensure that there is compliance with 5AMLD.

How can Momenta help you acclimatise to 5AMLD?

The world of financial services can be unpredictable with organisations encountering unforeseen changes they need to adapt too. In the case of 5AMLD organisations will need to become and remain compliant, and therefore it could be increasingly important for organisations to undertake detailed assessments, putting measures in place to ensure potential risk is minimised. In such a rapidly evolving industry there is a consistently rising demand for specialist knowledge and skill sets.

In parallel, many financial service institutions have opted to reduce headcount adopting a leaner, more cost effective, workforce model. However, addressing CFT/AML needs will mean that certain projects with this reduced internal resource and existing skill sets will need to overcome regulatory challenges by implementing additional resources to get the job done.

Momenta have over 30 years’ experience in providing a contingent workforce for regulated projects. We have helped several professional firms to source and secure vetted skilled contingent professionals, on demand, across geographies to meet their immediate needs when regulation’s like 5AMLD have come into play.

Have a look at our case studies here. Contact us to discuss your project requirements.