Risk & Economy » Compliance » CFO Playbook: The EU’s new AML regime

CFO Playbook: The EU's new AML regime

At the heart of these reforms lies the establishment of a formidable new authority – the Anti-Money Laundering Authority (AMLA) – poised to become the nerve center of the EU's AML efforts.

The European Union (EU) has recently made significant updates to its Anti-Money Laundering (AML) regulations, aiming to strengthen the fight against illicit finance and terrorist financing. These updates have far-reaching implications for finance teams operating within the EU.

The EU’s AML framework consists of multiple components, including regulations, directives, and the establishment of a new EU Anti-Money Laundering Authority (AMLA).

The recent updates focus on three main elements: the AML Regulation (AMLR), the sixth AML Directive (AMLD 6), and the AMLA.

AML Regulation (AMLR)

The AMLR aims to harmonize and strengthen AML/CFT rules across the EU. It introduces a “single rulebook” that provides detailed and directly applicable requirements for obliged entities.

These requirements include customer due diligence, beneficial ownership transparency, reporting obligations, and measures to mitigate risks associated with anonymous instruments.

Key provisions of the AMLR include an extended scope of obliged entities, enhanced due diligence obligations for specific transactions, potential countermeasures related to high-risk countries, and limits and controls on cash payments.

The AMLR also focuses on harmonising, clarifying, and reinforcing beneficial ownership rules.

Sixth AML Directive (AMLD 6)

AMLD 6 updates the rules and framework concerning national AML/CFT supervisors and Financial Intelligence Units (FIUs). It addresses areas that cannot be adequately covered by a regulation and require national transposition.

AMLD 6 covers topics such as supra-national and national risk assessments, statistics, registers, FIUs, AML supervision, sanctions, whistleblowers, and cooperation for AML purposes.

EU Anti-Money Laundering Authority (AMLA)

The establishment of AMLA represents a significant development in the EU’s AML framework. AMLA will be responsible for directly supervising the most high-risk financial institutions, as well as developing technical standards to specify the details of the new AML/CFT rulebook.

It will coordinate supervision of other financial entities by national authorities and facilitate cooperation among national Financial Intelligence Units (FIUs).

Compliance Requirements for Finance Teams

Finance teams need to understand and comply with the new AML regulations to ensure their organisations’ adherence to the law and mitigate the risk of financial crime. Here are some key compliance requirements that finance teams need to be aware of:

Extended Scope of Obliged Entities

The updated regulations expand the scope of obliged entities that are required to comply with AML rules. In addition to traditional financial institutions, entities such as crypto-asset service providers, traders of luxury goods and cars, and professional football clubs and agents are now included.

Finance teams in these sectors must implement AML measures, including customer due diligence and reporting suspicious activities.

Enhanced Due Diligence Obligations

Under the new regulations, enhanced due diligence measures must be applied to specific transactions.

Crypto-asset service providers, credit and financial institutions dealing with high net-worth individuals, and all obliged entities involved in transactions with high-risk third countries must perform enhanced due diligence.

This includes conducting thorough risk assessments and implementing additional control measures to mitigate the risks associated with these transactions.

Countermeasures for High-Risk Countries

The regulations allow for the application of countermeasures against high-risk countries. Obliged entities, as well as member states, may impose specific EU or national countermeasures to address the heightened risk posed by these jurisdictions.

Finance teams need to stay updated on the list of high-risk countries and ensure compliance with any applicable countermeasures.

Cash Payment Limits and Controls

The new regulations introduce stricter limits and controls on cash payments. A maximum limit of €10,000 for cash payments will be imposed, and obliged entities will be required to identify and verify the identity of individuals conducting occasional cash transactions between €3,000 and €10,000.

Finance teams must implement robust procedures to monitor and report cash transactions within these limits.

Beneficial Ownership Transparency

Enhanced rules regarding beneficial ownership transparency have been introduced. Obliged entities must identify beneficial owners with a threshold of at least 25% ownership or control and register this information in central beneficial ownership registers.

Finance teams should ensure compliance with these rules, including regular reviews of beneficial ownership information and reporting any discrepancies.

Best Practices for Maintaining Robust AML Programs

To navigate the evolving AML landscape and ensure compliance, finance teams can adopt several best practices:

Conduct Regular Risk Assessments

Finance teams should conduct regular risk assessments to identify and assess the money laundering and terrorist financing risks specific to their organization. This process involves evaluating customer profiles, assessing transaction patterns, and considering the jurisdictions in which the organization operates. By understanding their risk exposure, finance teams can tailor their AML programs effectively.

Implement Robust Customer Due Diligence Procedures

Customer due diligence (CDD) is a crucial component of an effective AML program. Finance teams should implement robust CDD procedures, including verifying the identity of customers, assessing the purpose and intended nature of the business relationship, and conducting ongoing monitoring of customer transactions.

By understanding their customers and their activities, finance teams can better detect and prevent suspicious transactions.

Foster a Culture of Compliance

Compliance with AML regulations should be ingrained in the culture of the organisation.

Finance teams should promote a strong compliance culture by providing regular training and awareness programs to employees, emphasizing the importance of AML compliance, and encouraging the reporting of suspicious activities.

Leverage Technology Solutions

Technology can play a significant role in enhancing AML compliance efforts. Finance teams should leverage advanced analytical tools, transaction monitoring systems, and artificial intelligence to detect and investigate suspicious transactions effectively.

These tools can help automate compliance processes, identify patterns of money laundering, and reduce the burden of manual reviews.

Stay Informed and Engage in Industry Collaboration

The AML landscape is dynamic, with new regulations and emerging risks. Finance teams should stay informed about the latest developments through industry publications, regulatory updates, and participation in relevant forums and associations.

Engaging in industry collaboration allows finance teams to learn from peers, share best practices, and stay ahead of evolving AML requirements.

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