What is AMLD5 (Anti Money Laundering Directive 5)? Why AMLD5 is important and necessary? Danske Bank case, Panama papers, and paradise leaks are some of those money laundering scandals that have taken the entire world by storm. Such revelations of fraud have compelled governments and regulatory authorities across the globe to take rigorous steps to counter money laundering and terror funding concerns.
As money launderers are now taking distinct approaches to clean their illicit funds, lawmakers need to make amendments to the existing anti-money laundering policies and laws to make them more powerful to cope with new money-laundering techniques.
In the effort, the European Commission has enforced its 5th Money Laundering Directive, called AMLD5. This regulation is necessary to be followed by all EU member states.
Let’s find out what exactly AMLD5 is.
What is AMLD5?
Indeed, the AMLD5 directive amends the 4th Money Laundering Directive that was indented for the prohibition of the usage of the financial sector for terrorist funding and money laundering. This new regulation aims to abolish financial crimes without making any significant changes to the functioning of the financial system.
This new directive introduces five fundamental reforms that are majorly impacting the Know Your Customer (KYC) processes and crypto services. We will talk about these reforms, but before that, let’s find out what the EU Directive is?
What is the EU Directive?
EU Directive is a regulation by the European Union for all its members. Each country is allowed to formulate its laws to meet the directive’s goals successfully. Although similar to FATF’s 40+9 Recommendations, EU directives are not legally essential to follow, failing to adhere to them may cause members to pay fine.
The last date to transpose this anti-money laundering directive (AMLD5) was 10 January 2020, which has already passed. However, still, a lot of EU countries haven’t fulfilled this requirement due to the dynamic nature of AMLD 5.
Let’s find out why AMLD5 is essential?
Why is AMLD5 necessary?
EU decided to introduce the AMLD5 directive after the outbreak of high-profile political scandals and terrorist attacks all across Europe.
The new level of money laundering acts hit European lawmakers, and they had to make amendments to AMLD4 to provide financial institutions better protection.
Some of the critical improvements are made in AMLD4 include:
AMLD5 strengthens the existing anti-money laundering and counter-terrorism policies by the EU.
It eliminates all the loopholes of AML4 directive that had been powering the financial crimes.
AMLD5 brings the anti-money laundering and counter-terrorism efforts by the European Union in line with current FATF Standards.
5 Important AMLD 5 Updates
- Purchase Identification – The threshold amount has been lowered to identify maximum e-money and prepaid card buyers.
- PEP Screening – All EU members need to create a list of their public officials to recognize politically exposed person. Under this new directive, all the political people will be listed who are into formal or informal political power.
- Obliged Entities – All the individuals and businesses that follow EU directives come under the “Obliged Entities.” These include banks, insurance companies, investment firms, credit institutions, and any other financial services. After the AMLD5 directive update, custodian wallet service provider and crypto companies will be counted as obliged entities.
- UBO Register – The UBO register will be accessible to the public. For those who don’t know, UBO Register is a national database that maintains accurate and up-to-date information about ultimate beneficial owners. Moreover, the register will also add the information of trusts and similar organizations that were free from this rule earlier. It will give the general public access to more accurate information on all EU companies and organizations.
- Customer Due Diligence – Also known as CDD is the process in which relevant information about the client is accumulated and checked for any potential risks related to terrorist funding, money laundering, etc. According to this new update, CDD will be necessary for all high-risk third countries.
Some other major AMLD4 to AMLD5 policy updates
- A lower transaction threshold for e-money and top-up cards has been put down from €250 to €150.
- As mentioned above, since custodian wallet providers and crypto companies will be regarded as “obliged entities, they will need to comply with the same AML/CFT, KYC, data-sharing requirements set for the traditional financial institutions.
- All the crypto companies will be registered with the legal authorities of EU members.
- Businesses that are involved in financial transactions with countries listed by the EU will need to follow additional compliance checks and take mitigation measures and conduct additional supervision.
- Art dealers and real-estate agents who are involved in the distribution of goods across the country will be treated as obliged entities if the total volume of their sale reaches € 10,000.
- All the businesses that are dealing with high-risk third countries must carry out EDD (Enhanced Customer Due Diligence).
- Financial companies will comply with the eIDAs, which means they will check customers’ identities for due diligence procedures. eIDAs also defines which electronic identification solutions can be utilized for KYC purposes.
- AMLD5 states that monitoring for complex and large transactions, especially those that have unusual patterns, must be increased.
- All the EU nations will need to keep their national public office database up-to-date and functional to detect politically exposed persons.
Considering everything together, it wouldn’t be wrong to say that if all European members comply with this new EU directive strictly, it can play a significant role in stopping terror funding and money laundering activities. What makes this regulation better from the earlier guidelines is that it does not replace the entire existing legislation (AMLD4), instead it makes it more potent with minor yet important changes?
If you’re into any business that requires you to comply with AMLD5 regulations, we advise you to take professional help as a small mistake can lead to a big headache later.
iDenfy is an identity verification startup committed to helping businesses meet compliance regulations. We provide you with a wide range of solutions for ID scanning, ID verification, facial recognition, liveness detection, PEP and Sanctions screening and more. For any help regarding AML compliance, you can seek our assistance for free of charge.