The European Union’s new Anti-Money Laundering (AML) reforms are set to transform the financial sector with the establishment of the Anti-Money Laundering Authority (AMLA). The new EU authority, which will be based in Frankfurt, Germany is expected to begin operations by mid 2025.
The reforms come in response to several high-profile suspected money laundering incidents across EU financial institutions. In July 2019, the European Commission reviewed the EU’s AML and Counter-Terrorist Financing (CTF) framework, identifying the need for reform and greater collaboration. This was underscored in the EU’s Security Union Strategy for 2020-2025, which encouraged the strengthening of the AML/CTF system.
The package of reforms proposed by the European Commission includes:
- The creation of the AMLA.
- Regulation on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing.
- A Directive establishing the mechanisms that Member States should put in place to prevent the use of the financial system for ML/TF purposes, repealing Directive (EU) 2015/849.
- Expanding the traceability requirements to cryptoassets.
AMLA is the cornerstone of the EU’s set of AML reforms that will have both direct and indirect supervisory powers over financial entities, with the authority to enforce sanctions and regulatory measures.
Summary of AMLA
AMLA will serve as the central supervisory authority, overseeing AML/CTF activity across the EU. As a decentralised EU agency, AMLA will coordinate with national authorities, directly supervise selected financial sector entities operating on a cross-border basis, facilitate joint cross-border cases analyses for Financial Intelligence Units (FIUs) and develop regulatory technical standards.
The AMLA is responsible for supervising the riskiest financial entities, intervening in case of supervisory failures, supervising the implementation of targeted financial sanctions and acting as a central hub for supervisors and mediating disputes between them.
The new laws that the AMLA will supervise include:
- Enhanced due diligence measures and checks on customer’s identity.
- Customer verification identities, transaction monitoring and suspicious transaction reporting (for top-tier Football clubs involved in high-value financial transactions with investors or sponsors, including advertisers and the transfer of players, from 2029).
The new framework aims to ensure that those with a legitimate interest – such as journalists, media professionals, civil society organisations, competent authorities and supervisory bodies, will have immediate, unfiltered, direct and free access to beneficial ownership information held in national registries and interconnected in EU level. The registries will include data going back at least five years.
Key Reforms for Financial Firms
New AML Directive (AMLD6)
The Sixth Anti-Money Laundering Directive will introduce several changes to strengthen the EU’s AML framework. It will introduce standardised definitions related to money laundering, including 22 predicate offences, to counteract the use of loopholes in Member States’ national provisions. Additionally, criminal liability for money laundering will be extended to legal persons. In other words, under AMLD6, companies operating in the EU can be prosecuted for money laundering. Finally, the minimum prison sentence for money laundering related offences will be increased from one year to four years.
Cryptoasset Service Providers (CASPs)
The current regulation only recognises certain types of CASPs as obliged entities. Under the AML reforms, the new Directive will broaden the scope to include all CASP categories, as identified by the Financial Action Task Force. Requirements under the new rules will cover transactions involving fiat or cryptoassets, wire transfers and transfers between CASPs and other obliged entities such as banks. Additionally, CASPs will need to apply customer due diligence measures when carrying out transactions of €1000 or more.
Cash Payment Cap
There will be an EU-wide cap on large cash payments set at €10,000, which may be lowered by member states based on their national risks. Obliged entities will also need to perform customer due diligence on individuals carrying out an occasional transaction in cash between €3,000 and €10,000.
These provisional rules are part of the 27 major changes outlined in the new AML reforms, aiming to create a unified regulatory framework and diminish any loopholes previously exploited by financial criminals.
Implications for UK Financial Firms
Although the UK will not be incorporating the AMLD6 into UK legislation, financial institutions that are regulated and operate across the EU will need to review their operations and procedures to ensure they conform to the new EU standards. Each EU member state enforces the AMLD through its national supervisory bodies and regulations. Thus, operating within any of the EU Member states will require adherence to the upcoming Directive.
Once published, appropriate preparation for AMLD6 would include a thorough analysis of current policies and procedures against the new standards on a country-by-country basis. This means reviewing existing standards across the relevant EU Member states and creating unified AML controls and governance for all EU operations.
How Complyport can help
For more information on how the AML reforms will impact your EU operations and for assistance preparing for these changes, reach out to us. Our Financial Crime specialist team is ready to support you with:
- Comprehensive AML and CTF Framework Assessments: Evaluate your current AML and CTF governance and controls against legal standards and industry best practices.
- AML Audits: Conduct a thorough review of your AML policies, risk assessments, procedures and compliance practices to assess the effectiveness of your company’s measures to prevent and detect money laundering activities.
- Training needs: Design a comprehensive training and assessment programme to ensure your teams understand your financial crime risks and controls.
- Regulatory Alignment: Help you prepare for supervisory visits, ensuring your framework meets the latest regulatory requirements.
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