The Fifth Money Laundering Directive (5MLD)

Nothing dampens the festive cheer quite like a regulatory change scheduled for the early New Year.

In April 2019, we published a blog on the UK government’s consultation paper into how the UK will enact 5MLD into UK law. It was expected that in Autumn/early Winter 2019 the government would have published it’s proposed regulatory changes so that the industry had time to prepare and implement all changes. However, it appears that a little minor political event called Brexit and a General Election, have somehow got in the way of this regulatory change being introduced to parliament…

In less than a month the Fifth Money Laundering Directive (5MLD) is scheduled to be implemented by the Government, but to date, they are yet to publish the final Anti-Money Laundering (AML) regulations! Several prominent industry experts, including SmartSearch’s CEO John Dobson, have written to the UK Government asking for the draft regulations to be published as soon as possible to ensure that firms can comply with the new requirements by the EU wide deadline on the 10th January 2020.

What do we know so far?

Unfortunately, as the actual text is yet to be made available, it is hard to say how the UK will fully implement the changes. Based on the UK’s consultation published in April 2019 the UK intends:

  • Firms will be able to place reliance on electronic identification tools to complete customer due diligence (CDD).
  • A new national bank account register – which will be accessible by law enforcement within the UK and EU member states.
  • Clarification of what prominent public functions meet the definition of a PEP.
  • Tighter controls relating to firms conducting business or opening subsidiaries in high-risk countries.
  • Increased transparency of whom is the actual beneficial owner of a company.
  • The use of anonymous safety deposit boxes will no longer be permitted.
  • Customers wishing to purchase gift cards and other prepaid products with a value of more than €150 will be subjected to due diligence.
  • Cryptocurrencies (e.g. BitCoin) will have a legal definition and will have greater regulation.

Once the final text is issued we will publish a detailed analysis of the changes and how it will impact firms, however, the key change for many adviser firms is the permitting the use of Electronic Identification (EV) to satisfy due diligence requirements.

For adviser firms, the introduction of EV will potentially lead to quicker, cheaper and more accurate methods of validating someone’s identity.

Getting it wrong

Again, whilst we presently do not know the final impacts failing to comply with 5MLD will have, we understand that firms could face:

  • Fines of up to €5million/10% of total annual turnover, whichever is greater.
  • Managers involved can be prevented from running a regulated business.
  • The firm itself can be prevented from trading.
  • A public statement of any breach will be made which could result in reputational damage.

What can I do to prepare for it?

Until the draft legislation appears, preparing with any certainty is unfortunately impossible. However, the consultation paper on the UK government’s proposals of how to enact 5MLD can be found here and should you wish to respond to it, you have until the 10 June 2019.

For your reference, the full text of 5MLD can be found here.

Once we have seen a copy of the final text we shall publish an updated blog with our analysis of the changes and how firms can best comply with them.

Tom Richmond – Technical Consultant