The new EU 5th Money Laundering Directive (MLD5) is coming into force on 10 January 2020 with enhancement to the existing provisions, aiming to further strengthen transparency and the existing preventative framework. This directive needs to be brought into national legislation by 10 January 2020. The UK will do so through amendments to the current Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
As mentioned in the HM Treasury consultation document, in implementing MLD5, the UK government is catering for the scenario where an implementation period is in place after the UK leaves the EU. During this implementation period, common rules will remain in place, meaning that EU law will continue to have effect in the UK in the same way as now until the end of an agreed implementation period. The UK’s Joint Money Laundering Steering Group confirmed that the finalisation and publication of its new Guidance is anticipated to be in line with the timing of the expected 10 January 2020 implementation of the amended MLRs.
Key changes introduced by MLD5 that impact financial services firms:
- Expanding the definition of tax advisor
- Limited application of customer due diligence (CDD) exemptions for certain e-money products
- Increased requirements to identify and verify names of senior management of a body corporate, or when the beneficial owner of the body corporate cannot be identified
- Higher requirements when entering into a new business relationship with a company or trust that is subject to beneficial ownership registration requirements
- A requirement for ongoing CDD where there is a duty to review beneficial ownership information
- Expanded scope of persons on whom obliged entities must conduct enhanced due diligence (EDD) – from ‘natural persons or legal entities established in the third countries’ to ‘business relationships or transactions involving high-risk third countries’
- Improved identification of politically exposed persons (PEPs)
- Establishment of national mechanisms for retrieving ownership information on bank and payment accounts
- Whistleblower protection
Firms offering cryptoasset exchange services and custodian wallet services will be required to register with the FCA and fulfil CDD obligations, assess the money laundering and terrorist financing risks they face, and report any suspicious activity they detect. The introduction of CDD obligations will ensure that firms verify the identity of their customers, and that law enforcement agencies will be able to use this information to identify the perpetrators of illicit activity.
Why is this important to you?
With just one month to go, crypto and financial services firms should consider the impact of these changes on their business and activities. In general, this is a good opportunity to confirm whether their overall approach to the prevention of financial crime is adequate and proportionate, and in line with regulatory requirements and expectations.
If you require any assistance in understanding how the implementation of MLD5 will affect you, please do not hesitate to contact us. We might help you with the:
- Review of your risk-based approach to financial crime prevention and the methodology you have adopted
- Preparation of your periodic money laundering and terrorist financing risk assessment
- Revision of your policies and procedures
- Provision of ad hoc and tailored financial crime prevention training