Recent high-profile anti-money laundering breaches have hit the headlines, with the Financial Conduct Authority issuing its second largest ever fine of its kind to one bank and the Solicitors Regulation Authority revealing it is probing 26 firms due to money laundering prevention failings. The FCA also outlined Anti-Money Laundering as one of its key priorities in its 2019/20 business plan. But with new regulation fast approaching, it seems some businesses are struggling to stay on top of the previous regime.
Key points of the current Anti Money Laundering laws
The current anti-money laundering directive focuses on a risk-based approach to checking for potential money laundering or financing of terrorism. An important part of the Anti-Money Laundering Directive is also recording and reporting risk to demonstrate decision making processes and show that firms are not over-reliant on assumed knowledge of clients.
What is 5AMLD and how will it affect your business?
The Fifth iteration of the Anti-Money Laundering Directive includes changes which might have an impact on your business even if you think you have AML under control.
Cracking down on terrorism is a source of focus for 5AMLD, strengthening the controls and measures under the Money Laundering Terrorist Financing and Transfer of Funds Regulation 2017. Cryptocurrencies have come under the spotlight as regulators try to combat concerns that their anonymity and relatively light regulation make them attractive to cybercriminals. Under 5AMLD, cryptocurrencies will face the same money laundering legislation as other currencies, including mandatory registration for exchanges and an obligation to submit suspicious activity reports.
Enhanced due diligence
More investigation will be mandatory when dealing with countries deemed to be high risk, for example, more must be done to obtain evidence of the source of funds and the background to the transaction. As part of 5AMLD, the criteria for identifying countries that are high risk has been expanded and the ‘blacklist’ has grown and now incorporates 23 countries.
Under the new directive, beneficial ownership of a company is to be more clearly identified. A national register of beneficial ownership for all corporate entities including trusts will be created and anyone who has significant influence or control over a company, including any person who owns more than a 25% share must be listed.
An increase in fines is also a key element of the new directive. Under 5AMLD, any fine levied will be twice the benefit of the transactions up to 1 mil EUR or for financial and credit institutions up to 5 mil EUR or 10% of annual turnover.
How can I make my business ready for 5AMLD?
The magnitude of the fines issued so far and the new levies that are coming into play show that anti-money laundering needs to be taken very seriously. 5AMLD is further complicated by the possibility of Brexit as no-one is entirely sure how it will be transposed into British law. It will be crucial for all businesses, but especially those with a global footprint, to recognise the nuances of anti-money laundering laws in different jurisdictions and the best way to do this is to harness anti-money laundering software. Most of the AML breaches that have been detected by regulators involve inadequate management of reporting risk and compliance controls and such software can tighten up these elements as well as boosting automation and reducing the risk of human error.
As regulators start to bare their teeth over money laundering breaches, its crucial to take the directives seriously and ask if your business is ready for 5AMLD?
By Andrew Frost
Andrew Frost is Executive Director at Lawson Conner and leads the Investment Management practice where he is responsible for the launch of asset management businesses and their associated investment funds. He works very closely with prospective launches across hedge, private equity, real estate, venture capital and corporate finance and covers a diverse range of entrepreneurs looking to establish their businesses under the FCA regulatory environment.
Andrew spent 10 years at Man/GLG, holds a degree in Economics from the University of Technology in Sydney and is a CAIA charterholder.
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