With the deadline to comply with the 5th EU Anti-Money Laundering Directive (5AMLD) looming on 10 January 2020, businesses in the EU are getting serious (or should be) about what the updated rules mean to them. One thing is for sure —the impact of the directive will be far-reaching, extending into a wide range of transactions that involve high-risk, high-value goods.
Let’s take a deeper dive into what the 5AMLD is about and how it might impact your business and your online customer identity verification program.
Want to learn more now? Download Jumio’s 5AMLD Compliance Data Sheet
What is the 5th AML Directive?
5AMLD is a modification to the 4th AML Directive, which was released in 2015. In a nutshell, it is a set of rules designed to bring more transparency to improve the fight against money laundering and terrorist financing across the European Union. The EU Commission proposed the revised AMLD in July 2016 as part of its Action Plan against terrorism, after the attacks in Paris and Brussels and as a reaction to the Panama Papers published in April 2016.
It is estimated that between $800 billion and $2 trillion is laundered every year. As stated by European Commissioner for the Security Union, Julian King, “We need to hit terrorists and criminals in their pockets — cutting off their access to money is a vital part of preventing their crimes.”
Just as a regulated business needs to perform checks on all of its individual customers, it needs to carry out checks on businesses too, identifying parent and subsidiary companies, shareholders, directors and persons of significant control for a complete audit trail.
Who is Subject to 5AMLD Compliance Requirements?
Previously, banks and money service businesses were the most affected, but now the scope is much wider than financial services. Cryptocurrency exchanges and wallets, previously unregulated by these laws, must now follow the same rules as any other financial service. This even includes letting agents and art dealers (to the extent they trade at values above €10,000), who now must carry out checks on their customers and keep an audit trail.
5AMLD Compliance and Your Online Customer Identity Program
Online identity proofing, AML screening and biometric-based authentication are important ingredients in the prevention of money laundering or terrorist financing.
Verifying and vetting your online customers is now widely understood by most financial institutions in the EU. In fact, the 5AMLD has a clause that acknowledges the digitalization of ID and the fact that accurate identification and verification of data of natural and legal persons are essential for fighting money laundering or terrorist financing.
Cryptocurrencies & Virtual Wallets: Anonymity and seamless cross-border payments are big advantages of crypto, but they are also reg flags to regulators, since they have been exploited to enable criminals and terrorists to launder funds easier. Under 5AMLD, crypto exchanges and crypto wallet providers are considered “obliged entities” and face the same requirements as financial institutions. These requirements include AML, customer due diligence, transaction monitoring and suspicious activity reports.
A New Definition of Risk: Payment companies are a major focus here with many being asked to perform KYC checks on a greater volume of their account holders. Prepaid companies will need to carry out checks on customers using cards funded with more than €150 (down from €250). Payment service providers will need to make sure that those making a remote payment over €50 are identified.
High-Risk Countries: 5AMLD prescribes enhanced due diligence measures for business relationships or transactions involving high-risk third countries, and also allows Member States to restrict “obliged entities” from opening branches/subsidiaries in high-risk third countries, and to restrict the opening of branches in a Member State of an “obliged entity” based in a high-risk third country. There will be new minimum requirements for enhanced customer due diligence including requirements to make the first payment to a verifiable account in the customer’s name and put in place additional security measures.
PEP Lists: Member states will be obliged to draft a list of offices and functions that qualify as politically exposed (PEP) on national level and including nationally registered international organizations. The EU will draft a corresponding list on EU level and consolidate the national lists from member states and publish the result. The lists will not name any persons. National as well as EU based PEPs continue to be high risk for the purposes of KYC, and require enhanced due diligence.
Know Your Customer: The 5AMLD changes give firms an opportunity to take stock of their compliance programs and make sure that their KYC program can be adapted to meet the new requirements. This starts by ensuring you’re addressing the concerns above, but really requires a rethinking of how streamlined and robust your current KYC workflows are. A smooth KYC onboarding program is also a big win for the customer experience and can represent an important differentiator in an increasingly competitive marketplace.
How Jumio Can Help
Jumio enables financial organizations, including banks, cryptocurrency exchanges and payments companies to fulfil their 5AMLD obligations with AML screening and monitoring, online identity verification and biometric-based user authentication.
Our solutions have helped banks and other financial institutions replace slow, ineffective and manual AML/KYC processes with more automated solutions that can be embedded within the online account setup and onboarding experience.
We invite you to learn more and get product details by downloading our 5AMLD Compliance Data Sheet.