The 4th Anti-Money Laundering Directive made a dramatic change in European anti-money laundering regulations beginning. Financial institutions and other covered businesses must understand how these new rules impact their operations and compliance programs.
Directives of the 4th Directive enhance customer due diligence measures and bring increased transparency about beneficial owners; extend oversight to new sectors, like virtual currencies.
Adopted by the European Parliament in 2018. The 4th Money Laundering Directive improves the prior legislation of the EU toward the establishment of an even more robust framework aimed at preventing money laundering and terrorist financing within Europe.
Only less than a year remains until enforcement. So it is expected that companies will have full knowledge of the key provisions under the fourth AMLD.
More importantly, however, it is how policies and protocols should be revised to remain in adherence with these strengthened standards.
Scope and Objectives of the 4th Directive
The 4th Money Laundering Directive (also known as AMLD4 or the 4th AML directive) was adopted to enhance further the measures related to the prevention of money laundering. I
t is targeted at facilitating the identification of the beneficial owners of companies and money that derives from criminal activities or terrorism.
Another vital objective of AMLD4 is to extend its scope to address new types of financial institutions. Including institutions dealing in digital currencies. It tries to close openings that criminals have exploited in the past and better protect the financial system at large.
Bonus: With less than a year to go until the new AMLD4 standards come into force, there is no time to waste – financial institutions should act now to refresh policies and procedures. Visit our compliance resources page for tools and guidance to help prepare your organization.
New customer due diligence rules
Under the fourth AML directive or AMLD4, companies will require more information from customers than ever before. Proof of identity in the form of IDs, verification of addresses, and evidence of the source of money have to be compiled for clients.
Critical details about clients have to be learned to reduce criminal money moving through the financial system by new obligations under the 4th Money Laundering Directive. These much stricter customer procedures are the ones to which companies have to adhere.
It means that, since the entry into force of the directive. financial institutions have raised by 30% the number of checks concerning transactions involving PEPs.
Tighter rules for politically exposed persons.
More robust controls for politically connected people: the fourth ML directive makes controls stronger. The 4th AML Directive defines ‘politically exposed persons’ as politicians, government owners, and family members of political officials.
The implementation of AMLD4 requires financial institutions to apply more checks on the exposures and money transactions of these persons.
Since the coming into effect of the 4th Money Laundering Directive. It has been noted that there was an increase in compliance activities relating to virtual asset services by 50%.
Supervision of virtual and cryptocurrencies
The new anti-money laundering directive—the so-called EU AMLD—covers digital money like Bitcoin for the first time. Many criminals used cryptocurrencies to move funds without tracking in the past.
4th Money Laundering Directive is forcing virtual asset services like crypto exchanges to adhere to the same anti-fraud rules as banks. It requires strengthening the controls on transactions and customers in an attempt to detect illicit uses of virtual currencies under the updated EU anti-money laundering rules.
Following the directive. There has been an increase of about 25 percent in reports of suspicious activities to special investigation units.
Tracing and reporting unusual activity
Under the 4th directive against money laundering, companies should monitor customer transactions more closely. The firms should look out for transactions that need to be clarified and also transactions that appear complex without reason.
If something unusual is spotted, record it and report it to special investigation officers. This aids authorities in finding out the ways by which dirty money is acquired. The anti-money laundering directive wants transactions to fit customers to find and stop criminal cash flows.
Results of Non-Compliance
Non-compliance with the fourth anti-money laundering directive from the EU can attract severe penalties if not obeyed by a financial business. Not observing it thus attracts huge fines or other enforcement actions from regulators.
The company could lose its permission to operate in some situations. The new anti-money laundering rules are much tighter for authorities to take action in case of violations. All financial firms should be prepared to meet all of the EU directive’s terms against money concealment.