Staying on Top of AML Regulations in Europe - AML Directive 4.1

In the cat and mouse game of money launderers and regulators, regulators can’t stand still. Case in point, it’s been less than 500 days since the EU released AMLD IV (Anti-Money Laundering 4.0) and already the 4.1 AML Directive has been introduced. As always, the regulations are designed to make it even harder to launder money, closing some loopholes and creating additional compliance requirements.

The first change, which all financial institutions need to be aware of, is that the start date is now January 1, 2017. The Commission wants to ensure that these paths of money laundering are closed as soon as possible.

The AML directives now will cover more types of organizations. Gaming and wagering services now must comply. Also, new Fintech firms such as virtual currency wallet providers and exchangers are included. One can imagine that without this coverage, the use of Bitcoin for money laundering could grow dramatically.

KYC Thresholds

KYC thresholds have been lowered. Of course, every institution should have their own threshold limits based upon their risk assessment criteria. There needs to be a balance between risk and convenience; it’s not practical to have an ID check for every cheap lottery ticket purchase. The Commission though, has new hard limits wherein the institution needs to apply know your customer standards.

For eMoney operators, there are now lifetime limits, as opposed to annual limits. Threshold limits that were previously set at EUR 2500 are now at EUR 250. If lifetime limits are passed, the KYC threshold drops to EUR 150.

Due Diligence

The Due Diligence requirements are now more stringent. There are fewer scenarios where SDD (Simplified Due Diligence) for eMoney are allowable. There are more situations where CDD (Customer Due Diligence) need to be re-done. And, there has been an expansion of the definition of high risk, wherein enhanced due diligence is necessary (including remote transactions).

For Trulioo, one especially interesting addition is explicitly allowing electronic ID for verification:

 Prevention of the use of the financial system for the purposes of money laundering or terrorist financing
(17) Accurate identification and verification of data of natural and legal persons is essential for fighting money laundering or terrorist financing. Latest technical developments in the digitalization of transactions and payments enable a secure remote or electronic identification. Those means of identification as set out in Regulation (EU) No 910/2014 of the European Parliament and of the Council27 should be taken into account, in particular with regard to notified electronic identification schemes and means that offer high level secure tools and provide a benchmark against which assessing the identification methods set up at national level may be checked. Therefore, it is essential to recognize secure electronic copies of original documents as well as electronic assertions, attestations or credentials as valid means of identity.
AMLD 4.1

E-ID is a major innovation in the RegTech industry, allowing for quicker, cost-effective, and seamless identification processes, while retaining the risk reduction and compliance requirements the financial industry demands. It replaces the cumbersome paper bound procedures of old, with new digital data techniques and procedures.

The need for effective AML procedures to limit corruption, terrorist funding and other illegal activities goes without questioning,” said Jon Jones, President of Trulioo.

However, the cost of compliance, both in terms of resources and time, creates a substantial burden on financial industries. Adding electronic ID in the 4.1 AML Directive acknowledges digital identity techniques can be done in a manner that is just as secure as any paper-based technique - a major step forward in the modernization of AML compliance.

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