On the 20th of May 2015, the European Commission adopted the 4th Anti-Money Laundering Directive, known as 4AMLD, with the express goal of preventing money laundering, tax avoidance and the funding of criminal and terrorist activities. The directive came into effect on the 26th of June 2017, significantly increasing the compliance requirements facing financial institutions and other businesses — specifically in terms of Know Your Customer (KYC) and Client Lifecycle Management.
Since then, 4AMLD has defined the KYC and AML compliance landscape across Europe, mandating a risk-based approach to existing and prospective client relationships, including the identification of key beneficiaries. The directive also includes requirements for internal company policies, encouraging an organisational culture of responsibility and vigilance.
The international business climate, however, is always evolving, and it soon became clear that the existing 4th directive was insufficient to fully address the challenges of financial crime in the digital age. This led to a collection of amendments and additions known as the 5th directive, or 5AMLD. The 5AMLD was adopted by the European Commission on the 19th of April 2018, giving member states 18 months from that date to bring it into effect in their jurisdictions.
While the new directive is fairly extensive, here are three of its most impactful amendments:
Increased regulation of virtual currencies
Over the past few years, decentralised virtual currencies like Bitcoin and Ethereum have skyrocketed into the public eye. And while it may have taken some time for regulatory agencies to catch on, the potential of virtual currencies — cryptocurrencies in particular — for money laundering and other illegal purposes is widely recognised by criminals and terrorists.
To crack down on this potential, the 5AMLD requires all member states to implement its official legal definition of a virtual currency. The directive has also been expanded to include all virtual currency platforms and custody wallet providers as “obliged entities” who need to verify customer identities and monitor transactions.
Stricter limitations on prepaid cards
The 5AMLD also shines a light on the use of prepaid cards to send money overseas, requiring the customer to be identified for all remote payment transactions of 50 euros and up. All anonymous prepaid cards issued in countries without regulatory requirements similar to that of the EU have also been prohibited.
Transparency into beneficial ownership
Another key change in the 5th directive relates to the records of beneficial ownership that businesses are required to keep (as per the 4th directive). Not only will access to these records be extended to any EU citizen — significantly increasing the transparency of that organisation — but the threshold of ownership will also be lowered from 25% to 10%. Additionally, all transparency obligations will extend to trusts operating in the EU.
As the 5AMLD is rolled out across member states, it’s important for companies like yours to take initiative and ensure compliance before it’s too late.
For more information on how to do just that, read our quick guide to KYC and AML compliance. Or if you would like to learn how KYC3 can help your company use KYC intelligence for a competitive edge, get in touch with a member of our team or start your free trial now.
