1. Introduction
The European Union is about to strengthen the legal instruments that help it to fight money laundering and to counter terrorism financing (CTF), with significant implications for financial institutions. On December 5, 2022 the Committee of Permanent Representatives of the European Union reached agreement on new anti-money laundering regulation (AMLR) and the new 6th Money Laundering Directive (AMLD6). These provisions will put in place a more consistent, closely defined and up-to-date framework, and are now being discussed with the European Parliament.
Financial institutions need to get ready to tackle these and related changes, including proposals for a new Anti-Money Laundering Authority (AMLA), and new 2015/847 regulation (regarding information accompanying the transfer of funds). Across each institution, key decision-making bodies, compliance officers, and AML compliance officers must prepare their organizations to work with the new regulations and regulatory body, and put in place any new methodologies and ways of working that this might require.
2. AML Authority (AMLA)
One of the most significant components of the EU AML/CTF package is the creation of a new decentralized European regulatory agency, intended to be at the core of AML/CTF supervision across EU member states.
The AMLA will be responsible, amongst other things, for the:
- Direct supervision of cross-border high-risk financial entities. This includes the capacity to enforce administrative and penal sanctions.
- Coordination of AML/CTF supervision across member states via the establishment of a harmonized methodology, thematic reviews, a central AML/CTF database and the enforcement of a cooperation duty.
- Coordination of the national supervisors and the Financial Intelligence Units (FIUs) that act to gather intelligence about suspicious activities at the country level.
The AMLA is likely to have a significant impact on financial institutions:
- Directly supervised entities will need to adopt, and work with, a new supervisory entity that has its own practices and perspectives.
- The new methodology established by the AMLA is likely to impact (amongst other elements): financial institution policies and procedures, customer due diligence (CDD) and monitoring measures, IT systems, governance and oversight, training, and the design of new services.
While the implications are significant, the AMLA is still some years away from full implementation and the above considerations are subject to change.
3. AML/CTF regulation
The new AML regulations (AMLR) proposed by the Committee of Permanent Representatives of the EU will spearhead the broader AML package and all European financial institutions will need to abide by them. Since this new piece of legislation will transfer the provisions of the current AML Directive into a Regulation, its contents will be directly applicable to member states.
The major updates contained in AMLR include:
- More transparency in relation to the measures taken at the management level to implement internal policies, controls, and procedures. The provisions consider the requisites for the role of the Compliance Office, as well as the tasks that this role ought to supervise.
- The extent to which financial institutions must implement group-wide polices.
- Provisions on the outsourcing of CDD, and the risk exposure derived from this.
- Rules on the identification of Ultimate Beneficiary Owners, especially regarding corporate structures such as trusts, or similar organizations.
4. 6th Directive on AML/CTF (AMLD6)
The new directive attempts to strengthen the fight against money laundering and the financing of terrorism. The main changes it introduces include:
- Requirements for Crypto-Asset Service Providers (CASPs) to be subject to specific, and more stringent, AML/CTF standards than other financial institutions.
- The merging of the list of high risk third countries published by the Financial Action Task Force with the list published by the EU. This should allow for increased coordination with the financial watchdog, and reduce the resources needed to maintain the lists.
- The imposition of more transparent Beneficial Ownership Rules, as well as clarification on the rules applicable to multi-layered ownership and control structures (with the aim of establishing the type of information that institutions are allowed to demand, as well as the handling of said data.)
- Measures limiting the use of bearer instruments, as well as increased limits on cash activity.
5. Revision of the Regulation on Transfers of Funds (2015/847)
In the context of requirements for CASPs established in the EU to be subject to new AML/CTF standards, the European Commission adopted a proposal for an update of the Regulation on Transfers of Funds (July 22, 2021).
The proposals introduce a Chapter III on CASPs’ obligations regarding transfers of funds. This subjects CASPs to similar rules as payment service providers by establishing obligations (i) for the CASP of the originator to include specific information with the transfers and (ii) for the CASP of the beneficiary to perform verifications on this information. In the context of transfers between CASPs, all transfers will be considered as cross-border.
The new Regulation will force CASPs to build adequate systems and organizational processes to ensure their compliance.
Capco provides comprehensive advisory expertise on AML/KYC-related topics. We can help your organization develop the right approach to adapt to, and benefit from, the impact of the EU AML/CTF package. Our capabilities include, but are not limited to, assistance in:
- Performance of gap analysis regarding the latest regulations, standards, and trends.
- Design, review, and implementation of AML/CTF policies and procedures.
- Optimization and (re)organization of AML/CTF-related process flows.
- Remediation of the existing client base to comply with the latest requirements.
- Set-up and fine-tuning of AML/CTF systems and software.
- Provision of training tailored to your organization's risk and characteristics.
