As the Fifth Money Laundering Directive (5AMLD) will be introduced on the 10th January 2020 which supersedes the Money Laundering Regulations from 2017, George Stark, director of Veriphy, who provide intelligent compliance for professionals, talks through what it will mean for legal practitioners. He said:
“The 5AMLD comes into force within the UK and throughout the EU on the 10th January 2020, and is the latest legislative attempt to tackle the problem of money laundering, which costs the UK economy alone £37 billion every year.
“These measures could be seen simply as tightenings of the existing legislation, but at Veriphy we think that may be slightly deceptive.
“5AMLD makes some minor changes to the scope of obliged entities; as well as expanding the definition of tax advisor and art dealer, the directive now includes firms acting purely as letting agents for the first time, in relation to high value transactions with a monthly rent of €10,000 or more.
“Also brought within scope (despite some noisy objections from the sector) are firms offering cryptoasset exchange and custodian wallet services, who will be obliged to register with a supervisory body (almost certainly the FCA), fulfil customer due diligence requirements, and report suspicious activity. Existing obliged entities should undertake risk assessments to see if they are involved with such transactions, carry out Customer Due Diligence checks where appropriate (for virtual assets this will mean both beneficiary and sender), and train all relevant staff accordingly.
“Electronic verification is given a regulatory endorsement. In the words of the Directive, “Accurate identification and verification of data of natural and legal persons are essential for fighting money laundering or terrorist financing. The latest technical developments in the digitalisation of transactions and payments enable a secure remote or electronic identification”, which acknowledges the success of the framework of aspirations laid out five years ago in (EU) 910/2014.
“For those dealing with corporate clients, there is a requirement that details of proof of beneficial ownership should be collected and checked, and a new CDD requirement to identify senior managing officials in cases where corporate beneficial owners cannot be identified.
“5AMLD also subtly expands the need for enhanced due diligence from instances of persons “established” in high-risk third countries to all matters which involve business relationships or transactions in such countries, which will also mean putting in place enhanced reporting mechanisms for financial transactions and limiting business relationships with persons in high risk countries. Senior management approval will be required for such relationships.
“5AMLD makes no changes to the risk-based approach stipulated for PEPs (politically exposed persons) but does bring welcome clarity to the vexed issue of who is and who is not a PEP and obliges the government to keep and publish an “exhaustive” list of what roles it considers to be “prominent public functions”. It is worth restating the government view that UK PEPs should be treated as low risk, in the absence of any complicating factors.
“Some of these measures will have marginal if any immediate impact on most firms within the property sector – the monthly rental threshold of €10,000 is not likely to affect many agents beyond central London. Others, such as the those relating to PEPs and electronic verification, introduce useful confirmations of best practice. We certainly expect to see broad adoption of electronic AML checks across the regulated sector.
“There are some elements though which seem like attempts at regulatory future-proofing, such as the inclusion within scope of virtual asset service providers, and the slight but important tweaking of the wording on high-risk third countries. It will be interesting to see how these two measures in particular perform in practice, and how vigorously they are supervised.
“As ever with regulation, the devil is in the detail of enforcement. Given the propensity amongst regulators for large exemplary fines – up to €5 million or 10% of annual turnover – there is ample reason within this directive for regulated firms to keep their compliance functions alert and well-equipped.”
