5MLD (or just some amends to the 4th?)
Just as organisations are getting to grips with changes to their systems and controls, required to ensure compliance with the EU Fourth Money Laundering Directive (4MLD), a revised set of rules is on the horizon. These new rules are being badged as the EU Fifth Money Laundering Directive (5MLD).
5MLD is not a new directive per se, but rather a set of amendments to 4MLD. These amendments, published in July 2016, are in response to the increasing terror threats in Europe, and the rise of technologies such as crypto currency.
It is possible that the changes under the 5MLD will be implemented during 2019, in which case the UK will be legally obliged to bring in these changes pre-Brexit. Given the UK committment to anti money laundering and counter terrorist financing, it is possible that the requirements of 5MLD will be introduced before the proposed date.
5MLD presents several key changes to 4MLD, namely:
- EU citizens could now have access to beneficial ownership information,
- the powers of EU Financial Intelligence Units will be enhanced,
- financial safeguards from high-risk countries will be increased, and
- the risks around virtual currencies and anonymised pre-paid instruments will be tackled more robustly.
1. Access to the beneficial ownership (companies and trusts) registers
Where a ‘legitimate interest’, can be demonstrated, EU member states will have to grant the public with access to beneficial ownership registers, which will include information about companies and trusts.
What constitutes a legitimate interest will be defined by each member state, and therefore the definition and threshold requirements may differ from one state to another.
All member states will have to make certain that the information held on their beneficial ownership register is ‘adequate, accurate and current’. Registers will need to include companies and trusts. Member states will need to submit their registers to a central platform managed by the European Commission which is scheduled to go live in January 2021, and which, once a legitimate interest is proven, the public would be permitted access to.
2. Stronger checks on high risk countries
Financial institutions handling financial transactions with high risk countries must carry out extra due diligence to minimise the risk of money laundering, possibly even including a form of electronic identification. These firms, known as ‘obliged entities’, must also submit beneficial owner information to a central register maintained by the European Commission. This register will allow crime prevention agencies to carry out investigations and act as a measure of regulatory compliance.
3. Enhancing the powers of EU Financial Intelligence Units
Under MLD5 a centralised platform will be set-up to allow Financial Intelligence Units (FIUs) to access information enabling them to identify account holders, account information and payment details. Information sought by FIUs must be able to be provided ‘in a timely manner’ to best support investigations.
4. Pre-paid instruments, custodian wallets and virtual currencies
Currently prepaid card holders can remain anonymous up to a prepaid limit of €250. MLD5 proposes to reduce this limit to €150. Above this new limit, providers of prepaid cards or wallets will have to carry out adequate verification of customer identity.
Furthermore, providers of virtual currency exchange platforms and custodian wallet services will also be required to undertake due diligence on their customers.
- 4MLD – http://www.legislation.gov.uk/uksi/2017/692/pdfs/uksi_20170692_en.pdf
- Legislative train schedule – http://www.europarl.europa.eu/legislative-train/theme-area-of-justice-and-fundamental-rights/file-revision-of-the-anti-money-laundering-directive-(aml)
- Prevention of the use of the financial system for the purposes of money laundering or terrorist financing – http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P8-TA-2018-0178
- Anti-money laundering: MEPs vote to shed light on the true owners of companies – http://www.europarl.europa.eu/news/en/press-room/20180411IPR01527/anti-money-laundering-meps-vote-to-shed-light-on-the-true-owners-of-companies
- Twelfth Report of Session 2017–19 – https://publications.parliament.uk/pa/cm201719/cmselect/cmeuleg/301-xii/301-xii.pdf