As financial crime is on the increase, it is important to be aware that the Fifth Anti- Money Laundering Directive (5AMLD) comes into force on 10th January 2020. The directive seeks to addresses various weaknesses in the European Union’s current Fourth Anti- Money Laundering Directive (4AMLD).
The major element of the 5AMLD is to reduce counter terrorist financing, strengthening the controls and measures under the money laundering regulations. The 5AMLD requires checks on businesses including parent and subsidiary companies, shareholders, directors, and persons of significant control (PSCs).
Although this new directive will not directly impact commercial finance brokers, it’s important to note the key amendments and consider if any changes need to be adopted.
Customer Due Diligence and Ultimate Beneficial Ownership
There will be a national register of beneficial ownership information on corporate and other legal entities, including trusts. This will be connected via a European central platform to facilitate cooperation and the exchange of information between member state authorities.
All UK private limited companies (PLC) and limited liability partnerships (LLPs) need to have their details registered and include those people who have significant influence or control over their company, either directly or indirectly, holding more than 25% of the shares or more than 25% of the voting rights.
Actions to consider
Brokers may wish to consider updating their policy, processes and procedural documents embedding customer due diligence and ultimate beneficial ownership checks into their compliance framework. The identification and verification of customer’s data can be conducted via electronic sources.
The NACFB has teamed up with SmartSearch to provide its broker Members and Patrons with access to the award-winning anti-money laundering platform at preferential rates. SmartSearch offers a simple and effective way to conduct due diligence checks on both individuals and businesses, accessing the data in seconds while remaining compliant.
High-Risk Third Countries
There will be a change in the way payments to high-risk third countries are dealt with which will include applying enhanced due diligence measures.
This will include:
- Establishing the reasons for the transactions, and details on the source of the Ultimate Beneficial Owner (UBO) funding and wealth.
- Reporting these transactions to senior management and obtaining authorisation for establishing or continuing the business relationship.
- Increasing controls on business relationship and scrutinise transactions.
Actions to consider
It is important brokers are aware that applicable firms may already be applying enhanced due diligence under anti-money laundering regulations. However, extra consideration will be required on whether their policies, procedures and processes need to be reviewed and updated under this new directive.
Politically Exposed Persons (PEP’s)
The 5AMLD requires member states to publicly release a functional PEP list including prominent politically exposed public functions. Any accredited international organisations and member states would have an up‑to‑date list of exact functions which qualify as prominent public functions.
Actions to consider
This information should then be verified for any sanction or other alerts by using an anti- money laundering system such as SmartSearch. It is also important to maintain records of these checks for at least six years for an audit trail.
It is advisable for brokers to have robust controls in place to combat financial crime. This will include conducting anti-laundering checks by requesting, questioning, challenging and validating data using your experience and knowledge. We all have a legal obligation to conduct these checks to ensure clients are not using businesses to disguise their actions for the proceeds of crime.
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