Clari5 Market Insights
European Union
EU Parliament Committees
AML / CFT Package Regulations
EU Parliament Committees have Mandated AML / CFT Package Regulations which EU Member States are Required to Implement in 2024
By when must Financial Institutions (FIs) comply with the guidelines?
FIs must meet the EU guidelines with immediate effect.
Why has EU issued the new guidelines?
Money laundering and terrorist financing pose a serious threat to the integrity of the EU economy and financial system and the security of its citizens. Europol estimated that around 1% of the EU’s annual Gross Domestic Product is detected as being involved in suspect financial activity. Therefore, certain decisions have been taken by the EU.
The EU Security Union Strategy for 2020-2025 highlights the importance of enhancing the EU’s framework for AML and CTF.
The European Commission also presented an ambitious package of legislative proposals to strengthen the EU’s AML / CFT rules, in 2021. The Commission commits to protect EU citizens and the EU’s financial system from money laundering and terrorist financing. It aims to improve the detection of suspicious transactions and activities, and to close loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system.
Highlights of the mandate
The EU Parliament’s Committees have adopted their position on three pieces of draft legislation on the financing provisions of AML / CFT policy. The package consists of:
- Provisions on conducting due diligence on customers, transparency of beneficial owners and the use of anonymous instruments, such as crypto assets, crowdfunding platforms.
- Provisions on supervision and FIUs, access for competent authorities to necessary and reliable information, including beneficial ownership registers and assets stored in free zones.
- the regulation establishing the European AMLA (AMLD 6) with supervisory and investigative powers to ensure compliance with AML / CFT requirements.
Entities including banks, asset managers and crypto asset managers will be required to verify their customers’ identity, what they own and who controls the company. They will also have to establish detailed types of risk of money laundering and terrorist financing (ML / TF) in their sector of activity and transmit the relevant information to a central register.
The EBA has published two sets of guidelines on the effective management of ML / TF risks when providing access to financial services.
- The EBA ML / TF risk factors guidelines are amended to include an annex setting out what financial institutions should do to identify and assess ML / TF risk associated with customers who are not-for-profit organizations (NPOs).
- Also aims to clarify the interaction between the access to financial services and institutions’ AML / CFT obligations, including in situations where customers have legitimate reasons to be unable to satisfy customer due diligence (CDD) requirements. In addition, they set out the steps institutions should take when considering whether to refuse or terminate a business relationship with a customer based on ML / TF risk or AML / CFT compliance grounds.
The EBA has launched a consultation on amendments to its guidelines on risk-based AML / CFT supervision, which are extended to crypto asset service providers (CASPs). The amendments, among other things:
- Provide guidance on the sources of information competent authorities should consider when assessing ML / TF risks associated with CASPs.
- Highlight the importance of a consistent approach to setting supervisory expectations where multiple competent authorities are responsible for the supervision of the same institutions.
- Stress the importance of training to ensure that staff from competent authorities have the technical skills and expertise necessary for the execution of their functions.
Detailed Guidelines under Prevention of the use of the financial system for the purposes of money laundering or terrorist financing
The Commission will also provide law enforcement authorities with access to this system, speeding up financial investigations and the recovery of criminal assets in cross-border cases. The proposed regulation makes several changes to the existing AML / CFT Directive to bring about a greater level of harmonization and convergence in the application of AML / CFT rules across the EU:
- To ensure consistent application of rules across the internal market, requirements in relation to internal policies, controls and procedures are clarified, including in the case of groups, and customer due diligence measures are made more granular, with clearer requirements according to the risk level of the customer.
- The requirements in relation to third world countries are reviewed to ensure that enhanced due diligence measures are applied to those countries that pose a threat to the Union’s financial system.
- Requirements in relation to PEP are subject to minor clarifications, particularly as regards the definition of a politically exposed person.
- Beneficial ownership requirements are streamlined to ensure an adequate level of transparency across the Union, and new requirements are introduced in relation to nominees and foreign entities to mitigate risks that criminals hide behind intermediate levels. It is important to reduce the percentage threshold that serves as indication of ownership of a legal entity from 25% to 15%.
- To guide more clear reporting of suspicious transactions, red flags raising suspicion are clarified.
- To ensure full consistency with rules, EU data protection requirements for the processing of certain categories of personal data are introduced and a shorter time-limit is provided for retention of personal data.
- Provisions preventing traders in goods or services from Member States accepting a single purchase, while allowing cash payments of over EUR 10000 to maintain in force lower ceilings for large cash transactions.
- Members considered that obliged entities should report all suspicions of money laundering, terrorist financing or predicate offences to the FIU, including suspicious attempted transactions. They should reply to a request for information by the FIU within five working days unless the FIU determines a different deadline.
- Limits to large cash payments: Persons trading in goods or providing services may accept or make a payment in cash only up to an amount of EUR 7000 (as opposed to EUR 10000) or equivalent amount in national or foreign currency, whether the transaction is carried out in a single operation or in several operations which appear to be linked. Member States should not discriminate between residents and non-residents about the limits applicable for cash payments.
- Payments in crypto assets without the involvement of a crypto asset service provider: The report stated that persons trading in goods or providing services may accept or make a transfer in crypto assets from a self-hosted address only up to an amount equivalent to EUR 1000 whether the transaction is carried out in a single operation or in several operations which appear to be linked, unless the customer or beneficial owner of such self-hosted address can be identified.
- Member States should ensure that appropriate measures, including sanctions, are taken against natural or legal persons acting in their professional capacity which are suspected of a breach of the limit.
How Clari5 helps EU’s FIs quickly comply with EU’s guidelines
Highlights
Advantages
Highlights
- End- to End AML compliance solution with pre-packaged AML scenarios, which cover recommendations made by various regulatory agencies.
- Real-time Customer Due Diligence module which can be integrated to any type of watchlist, PEP list and has capabilities to screen any parameter or entity.
- Enables profile-based risk assessments and periodic reassessments of onboarded customers and entities for the customer based on diverse high-risk red flags derived from transaction, demographics, geography and products / delivery channels.
- Up to 5 risk levels available with configurable inputs and covers Enhanced Due Diligence.
- Scenario Authoring Tool to configure new scenarios and modify existing scenarios with multiple variables to combat emerging money laundering patterns and risks, however sophisticated. Various parameters like Threshold & Time Duration can be configured based on the business policies – from floor to ceiling values.
- Real-time transaction processing systems (Core Banking and remittance systems) to correlate and detect any suspicious money laundering schemes which also generates a case for investigation.
- Supports regulatory reporting for timely filing along with integrated role-based reports and dashboards for any investigator or supervisor.
Advantages
- Clari5’s web-based Scenario Authoring Tool configures new scenarios as / when required, without any coding or effort from the IT team.
- Our pre-packaged AML scenarios cover recommendations made by various regulatory agencies.
- Parallel use of AI / ML tools and graph analytics to extract new patterns, deploy them for better detection rates with lower false positives.
- Entity link analysis feature helps expose customer / account associations and organized money laundering.
- Case Management System to shrink analyst time on false positive investigation, using AI / ML driven models on past resolution data; workflow-driven investigation in a configurable centralized or decentralized manner.
- Quicker implementation because of prepackaged AML scenarios and built-in interfaces for integration.
- Low-cost commodity hardware infrastructure leading to reduced TCO.