5MLD will replace 4MLD, with the intention of improving transparency and the existing preventative framework to more effectively counter money laundering and terrorist financing across the EU.
The government intends that the new requirements being introduced by 5MLD will come into force in national law by 10 January 2020.
HM Treasury has just closed a consultation on the approach the Government proposes to take to meet the UK’s obligation to transpose the directive (EU) 2018/843 (5MLD) into national law. Details of the plans can be found in the consultation paper.
Some of the aspects summarised below are likely to need your attention. When the outcome of the consultation is published, we will provide more detailed guidance. Meantime, this is for your information.
- New obligated entities
Expanding the scope of entities to include letting agents, Crypoassets, Art intermediaries and widening the scope in relation to tax matters;
- Customer Due Diligence (CDD)
Clarity regarding what constitutes ‘secure’ electronic identification processes, changes to regulation 28 and 31 to provide further clarity;
- Electronic Money
5MLD reduces the thresholds above which CDD must be applied;
- Obliged entities: beneficial ownership requirements
5MLD introduces further changes to the requirements of obliged entities on verifying the identities of customers or beneficial owners;
- Enhanced Due Diligence (EDD)
A new defined set of EDD measures for business relationships or transactions involving high-risk third countries. It also appears to amend the ‘reliable and independent source’ requirement for verification of customer information to include ‘where available, electronic identification means’. This suggests that not only will the source have to be reliable and independent, it will also have to be electronic;
- Politically exposed persons: prominent public functions
Further detail on the open-ended definition of prominent public function. A PEP list will be created by ‘the member state’ (possibly the FCA?) which will feature the name of positions (but not the person in the role) which are politically exposed. The purpose of the list is to help smaller compliance teams, or firms with lower volumes of customers, to identify PEPs that they should be screening against and monitoring for ongoing changes to risk.
In principle, this sounds like a helpful tool, however any discrepancies in the data could cause problems for firms. Firms will need to consider whether they have taken enough steps to ensure that the data used to inform them these roles are robust enough to ensure compliance;
- Mechanisms to report discrepancies in beneficial ownership information
Introduction of a mechanism for reporting these discrepancies;
- Trust Registration Service
Expands the scope by requiring trustees or agents of all express trusts to register those trusts with the TRS, whether or not the trust has incurred a UK tax consequence – this will have an impact on firms that advise Trustees;
- National Register of bank account ownership
5MLD extends the information required to be held in the register;
- Requirement to publish an annual report
This relates to the Treasury’s annual report;
- Pooled Client Accounts (PCAs)
Considerations around the risk PCAs present;
- Additional technical amendments