What is eKYC?
by Rory Traynor
UK AML laws are spread across numerous acts, directives, and regulations, making it difficult for directors to know exactly what they need to do to keep their company compliant.
Among the most important of these is the 5th Money Laundering Directive (5MLD) which introduces a series of wide ranging measures to protect the wider European and UK financial systems from exploitation.
As with all the Money Laundering Directives, this is an EU piece of legislation but it has been adopted into UK law, because of our close proximity, highly interconnected marketplaces, and on the recommendation of the Financial Action Task Force (FATF).
Under UK law it is officially known as The Money Laundering and Terrorist Financing (Amendment) Regulations 2019, but in practice it is still referred to as the 5th MLD
What is the 5MLD?
The 5th MLD is a wide ranging piece of legislation that expands the scope of who is affected by AML laws, both businesses and customers, and introduces further defences to the UK and European financial systems.
Why introduce it?
Originally commissioned in by the EU Parliament in 2018, 5MLD began to be implemented by governments from the beginning of 2020 to keep pace with the ever evolving faces of business and financial crime.
Beyond the constant need to keep laws governing highly fluid operating environments up to date, 5MLD was brought about chiefly by:
- Changes in the financing and operating of terrorist groups
- Money launderers and other financial criminals adoption of cryptocurrencies
- Wider awareness of the extent that wealth is being hidden thanks to documents such as the Panama Papers
- The recommendation of the FATF
What did it change?
Politically Exposed Persons (PEPs)
5MLD introduced the requirement for adherents to maintain a list of all the high profile public positions that qualify as a PEP.
A list of prominent positions at any significant international organisations hosted by the member country must also be kept.
Expansion of who is covered under AML regulations
5MLD also increased the scope of who must be subject to AML regulations in member states.
These were:
- Cryptoasset exchange providers
- Custodian Wallet Providers
- Letting Agents
- Art Dealers
Changes to beneficial owner data requirements
It was made to be a requirement that any discrepancies found in beneficial owner data whilst conducting financial due diligence be reported to the member state’s relevant agency.
Regulation around the use of digital IDV in onboarding
Due to the growing adoption of digital IDV checks used in onboarding, 5MLD introduced the requirement that these be provided by a trusted and verified company. Member states need to maintain a list of such providers and make this publicly available.
Expansion of enhanced due diligence (EDD) requirements
5MLD made it a requirement to perform EDD when:
- The customer is from or transaction goes through a high risk country
- The transaction is unusually large
- The transaction is unusually complex
- The transaction does not make immediate economic, legal or business sense
It also introduces a detailed list of what constitutes EDD
Lower threshold for AML checks on prepaid cards
Following the sharp increase in the use of prepaid cards in financial crimes 5MLD makes it a requirement to perform AML checks on transactions of €150+ (or €50+ if not in person).
Information sharing between Financial Intelligence Units (FIUs) and increased powers for them to request information
5MLD created a central bank account and payment transaction register and introduced electronic data retrieval systems to facilitate better information sharing between FIUs. It also increased the power of FIUs to request information form businesses pertaining to customers, transactions and AML processes.
What’s next for AML laws?
AML laws evolve rapidly compared to most others due to financial criminals being incredibly adept at inventing new schemes, finding new vulnerabilities, and adopting new technologies. In fact, there is already a 6MLD, though it is much less significant than its predecessor.
The UK also has its own distinct pieces of AML regulation that need to be kept in line with the money laundering landscape.
It is important that you ensure you are aware of any impending changes and that you ensure your business remains compliant with them.
To speak to an expert about how we will keep you compliant, reduce your onboarding time down to minutes, and improve your customer journey, speak to an expert today.
