Warnings over preparedness for new AML rules

The fifth Anti-Money Laundering Directive has come into force today, with warnings that many companies now governed by the regulations are not prepared.

Last year the government consulted on proposals for the transposition of the EU rules into UK law, but due to the general election, the Treasury has not yet officially responded with its findings.

The Law Society recently suggested that the incoming government is likely to proceed with the transposition as a matter of urgency, but until the text of the regulations are released, there remains uncertainty about the direction of travel on some issues raised in the consultation.

The fifth iteration of the EU-wide rules place increased importance on the acceptable use of electronic verification methods in confirming identity of banking customers or parties to a transaction, without the need for passports or utility bills.

Consequently, all financial services firms - including solicitors, accountants, estate agents and now also letting agents not currently using electronic verification - need to re-evaluate their customer due diligence processes.

The new regulations also recognise the latest technological developments and state that regulated businesses can use electronic verification instead of traditional Know Your Customer methods such as passports, driving licenses and utility bills. Since 2004, firms have been able to use electronic verification, but the latest regulations are explicit in that firms must use this method as their sole basis of client verification.

Martin Cheek, managing director of SmartSearch, warned that any firms that haven’t already prepared will need to take action immediately – including sectors that were not previously included, such as cryptocurrency platforms, art dealers, pre-paid cards and certain letting agents dealing with rents of over €10,000 per month.

“It’s a pity the regulations didn’t appear until so late in the day, but it is imperative that firms take action now to show they comply with the new regulations or else they could face a significant fine.

“There is increased national and international focus on the scourge of money-laundering and terrorist financing and electronic verification is an easy way to help prevent this,” he added.

Charles Delingpole, chief executive of Comply Advantage, commented that the biggest change is the regulation of cryptocurrencies.

"Rather than being able to respond to the range of new responsibilities, some firms are shutting down completely, as they are now considered “obliged entities”, and face the same CFT/AML regulations applied to financial institutions under 4AMLD.

"Practically, this involves an obligation to perform customer due diligence (CDD), and submit suspicious activity reports (SAR) - mining pool Simplecoin and gaming platform Chopcoin have already closed as a result of new regulation."

Delingpole added: "Understandably given recent political gyrations, there has been no response to the AMLD5 consultation - it is unlikely that the government would have had little latitude to vary the implementation of the direction given how prescriptive the legislation is."

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