What is the 5AMLD?
The 5AMLD, also known as the Directive (EU) 2015/849 (the 5th anti-money laundering Directive) is a European Union directive that came into effect on January 10, 2020 and was adopted on May 30, 2018. The 5AMLD sets regulatory requirements for obliged entities/persons, in order to tackle money laundering, terrorism financing and other emergent issues. The following main goals have been defined under the 5AMLD:
- Addressing new areas that were insufficiently or not covered in the previous directive, such as crypto-currency; prepaid cards; beneficial ownership; Politically Exposed Persons (PEPs); high-value transactions; high-risk third countries and art transactions;
- Increase transparency in order to determine the ultimate beneficiaries of a company, and better determine their shareholding structure;
- Improve information access for Financial Intelligence Units (FIUs), by providing them with centralized bank account registers;
- Enhance cooperation and information exchanges between national money laundering authorities and the European Central Bank;
- Define new criteria in order to assess what high-risk third countries are and set a coherent framework for transactions from such countries.
What is the difference between 4AMLD and 5AMLD?
In the light of terrorist attacks which happened between 2015 and 2016 in Europe, the 5AMLD was pushed in order to respond to emerging new trends for financing terrorism. Amending the 4AMLD, the 5AMLD strengthened already existing provisions within the previous directive and explored new areas, such as the one mentioned above. Few examples can be drawn in order to understand the various improvements under the 5AMLD:
- Cryptocurrency exchanges are now considered as “obliged persons” under the 5AMLD, although not being considered in the 4AMLD. Thus, they have to comply to KYC requirements and setup AML-CFT mechanisms;
- A more specific approach towards PEPs has been adopted: as stated in Article 23, the list of PEPs should be issued by Member States, with their specific functions, in accordance with national laws. Member States should also be responsible for requesting PEP lists from international organizations working on their soil;
- Although 4AMLD already set the obligation for member countries to create a beneficial ownership registry, 5AMLD improved provisions related to shareholding transparency, and bound countries to make their registry public;
- Compared to 4AMLD, anonymous prepaid cards now have lower limits (150 euros for in-shop purchases and 50 euros for online purchase, against 250 euros in 4AMLD).
What are the internal procedures mentioned in 5AMLD?
Different internal procedures are mentioned in the 5AMLD, especially regarding due diligence and prevention mechanisms for AML for cryptocurrency exchanges:
- As cryptocurrency exchanges are now obliged to the same obligations as financial institutions, they have to conduct customer due diligence, implement KYC processes as well as AML requirements and submit Suspicious Activity Reports (SARs) to FIUs. They also need to be registered to the national regulatory authority, such as the Financial Conduct Authority in the UK, BaFin in Germany or the AMF in France;
- Suspicious transactions should be flagged and pass through a reporting system, in order to obtain the approval of relevant managerial authority;
- Enhanced due diligences (EDD) involving the identification of UBOs and funds provenance have to be conducted for transactions or business realized with high-risk countries as stated in Article 12. Additional mitigating measures may be implemented by Member States at a national level, in addition to EDD;
How to implement the 5AMLD?
In order to implement the 5AMLD in a compliant manner inside your company, a solid and robust KYC process should be setup, for successfully respecting AML-CFT requirements. With a risk-based approach, companies have to develop mechanisms and mitigation techniques to prevent loopholes in their daily activities. As an example, the transaction, its amount, the geography and channel used may be screened automatically in order to determine the level of risk of such transaction. Due diligence and EDD have to be realized depending on the situation, in order to secure business relationships, specifically in high-risk third countries. Failing to implement 5AMLD and its requirements can lead to sanctions such as fines up to 5 million euros or 10% of the annual turnover of the obliged person, or its activity’s suspension.
If you want to implement easily 5AMLD for your KYC process, you may use an external solution such as IDnow AutoIdent, providing identity screenings and checks during onboarding processes, in a transparent and pain-free manner.