By June 26, 2017, all EU member states must be compliant with the European Union Fourth Anti-Money Laundering Directive (AMLD). The Directive aims to improve the effectiveness of combating money laundering from criminal activities and countering the financing of terrorist activities by increasing transparency of who truly owns companies and trusts. Here are a few compliance requirements that will change as a result of the fourth AMLD.
Emphasis on Ownership and Management
Greater emphasis will be placed on enhancing transparency of customers’ beneficial ownership information. Financial institutions will face more stringent beneficial ownership record retention requirements for a beneficial owner who controls over 25 percent of the shares or voting rights of a customer. Those records must be made available to law enforcement when needed. Also, Member States must prohibit companies from issuing bearer shares. Because the shares don’t register the stock’s owner or track transfers of ownership, they’re often used in criminal activities. In addition, “senior management” will be redefined to include officers or employees with specific knowledge of the institution’s exposure to money laundering or terrorist financing risk and enough seniority to make decisions affecting risk exposure. The broader definition includes a wider group of workers for greater compliance enforcement.
Broader Definition of a Politically Exposed Person
The definition of a politically exposed person (PEP) will be broadened with clarification of requirements for carrying out enhanced due diligence (EDD) on domestic and foreign PEPs. When a PEP no longer holds a prominent public position, financial institutions must consider the ongoing risk posed by being affiliated with the PEP for at least 12 months until the specific risk has diminished.
Enhanced Risk-Based Approach
EU member states will be required to complete national-level risk assessments to identify, understand, manage and mitigate AML risks for individual jurisdictions. The EU Commission will conduct an assessment of the AML and Terrorist Financing (TF) risks at least biennially to identify cross-border threats. The assessments will help financial institutions conduct their own AML risk assessments for customers, products, geography, channels and other factors. Also, more stringent simplified due diligence (SDD) requirements will require financial institutions to determine the level of AML risk a customer poses prior to applying SDD status. Justification must be made for letting certain categories of customers, such as a financial institution listed on a regulated market, qualify for SDD status.
Policies and Procedures
New requirements for financial institutions will include data protection policies within their AML policies and procedures for customer information sharing. Institutions with branches outside the EU, especially in jurisdictions with insufficient AML laws, must implement AML requirements of the regulated entity’s home member state in those branches.
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