8 ways the 5th Anti Money Laundering Directive will affect financial services firms
The European Commission are now applying more focus on anti-money laundering risks and have said that they may open infringement proceedings against countries lagging behind on the new anti-money-laundering rules.On 10 January 2020, the Fifth Anti-Money Laundering Directive (5AMLD) came into force in the UK. HM Treasury has implemented MLR 2019 to take account of the changes required. The Directive aims to crack down even further on financial crime: primarily by widening the net and increasing transparency. Here we explain some of the effects the 5AMLD will have on financial services firms.
1. You’ll have to check the Persons with Significant Control (PSC) register for new clients
Anyone taking on a new client will have to obtain evidence that the client has filed details of their Persons with Significant Control (PSCs) with Companies House, and will also need to report discrepancies between the information they hold, and what’s on the PSC register. Much of the data on the PSC register is unreliable, so proposals to improve the accuracy of this are a step in the right direction.
2. You can verify a client’s identity electronicallyThe 5AMLD clarifies that electronic due diligence can be used as a source of verifying client identity. It's acceptable, as long as you can satisfy yourself that the process is secure from fraud and misuse, and capable of providing an appropriate level of assurance that it is accurate. The ability to use electronic identity verification will help with your Know Your Client (KYC) take-on procedures.
3. Enhanced Due Diligence will be needed more often
The rules now require enhanced due diligence for additional risk factors. These will affect your risk assessment as part of customer due diligence (CDD).
These risk factors include:
- golden visa applicants,
- dealing with a client remotely without reliable electronic CDD,
- certain transaction risks including those involving oil, arms, precious metals, tobacco, ivory and protected species.
4. 5AMLD will extend the scope of businesses captured
The extended scope of the directive will cover some new sectors, including:
- letting agents,
- art dealers
- cryptocurrency exchanges and wallet providers, and
- all providers direct and indirect of tax advice. For example, this includes repayment agents who act in the course of business as tax advisers. They are often referred to as High Volume Repayment Agents.
5. Identify complex transactions
Firm policies should be updated to identify transactions that are complex or unusually large.
6. Adapt policies for new products and markets
Policies should be amended to ensure that when new products, business practices or technology are adopted, the firm assesses and mitigates the money laundering and terrorist financing risks of these.
7. Find the senior manager official in the company
If you have exhausted all possible means of identifying the beneficial owner of a company, you must then take reasonable measures to verify the identity of the senior managing official in the company.
8. Enhance your due diligence
Enhanced due diligence is required for any transaction where either of the parties is established in a high-risk third country, or where the transaction is complex or unusually large.
- ICAEW has teamed up with SWAT UK to create a package of online systems and insightful online training seminars tailored to meet your requirements.
- Visit ICAEW's anti-money laundering hub
- View the statutory instrument to amend the regulations
- Read further guidance on how to report a discrepancy on Persons with Significant Control that have been filed with the registrar (i.e. Companies House).