Remember the infamous Panama Papers? We do, and, apparently, so do the EU member states whose reaction to rampant syphoning of billions offshore by some of the most prominent statesmen and members of the global société was to draft new regulations for preventing the funding of criminal and terrorist activities through the financial system.
On Jan 10, the 5th Money Laundering Directive adopted by the rest of the EU on May 14 2018, has finally come in full force for the UK as a set of important updates to the requirements put forth by the far-reaching 4th Money Laundering Directive (4MLD).
The primary goal of 5MLD is to increase transparency into the often opaque financial activities that circumvent the current Know Your Customer (KYC) procedures. From now on, financial institutions will need to dig deeper into the identities of individuals and entities with whom they are involved in order to prevent the mischief in the global financial system. The directive encourages businesses to have robust KYC algorithms as well as efficient customer due diligence programs in place to effectively shut down individuals and businesses who want their identity concealed.
Whilst changes introduced by 5MLD are not as over-arching as those under 4MLD, the drive for even greater transparency has a number of significant implications for financial firms as they strive for a firmer grasp of KYC processes. Let’s take a closer look at what’s coming.
Disclosing beneficial ownership registers
Following up on the requirements under FinCEN’s CDD Rule, beneficial ownership is one of the largest areas that changed under 5MLD. Member states are required to develop accessible public ownership registers that are potentially interoperable across the EU.
The ability to review ownership structures plays a significant role in fighting the global money-laundering problem. The registers will provide more transparency for the financial institutions and their clients; however, the additional information searches may add to the workload for already thinly-spread compliance departments.
Magnifying glass on high-risk states
To combat the increased money laundering risk, customers from high-risk states will be subject to enhanced due diligence under 5MLD.
Regulating digital assets and cryptocurrencies
We at Smartlands sincerely hope that 5MLD will finally put to rest the concerns about the role crypto supposedly plays in financing of nefarious activities. True, the borderless peer-to-peer structure of cryptocurrency exchanges is well-suited for criminals, but 5MLD now requires more thorough verification of customer identities and the need for due diligence processes. When implemented, 5th Money Laundering Directive, along with many other global regulatory actions, will bring oversight to a sector that needs more transparency to achieve its full potential.
“Undoubtedly, 5MLD is a move in the right direction because the steady trend of preventing financial crimes with the use of cryptocurrencies compels the issuance platforms like Smartlands to cooperate with the legacy finance sector much easier. Both firms and regulators are still overcautious/hostile to crypto altogether due to KYC/AML issues,” says Ilia Obraztsov, Smartlands CEO, adding that “the measure will allow us to build stronger strategic partnerships with institutional investors to further develop our brand of digital securities and will solidify trust on the part of retail investors who remain somewhat fastidious towards crypto regarding it as a major vehicle for illicit activities online.”
The clear benefit for Smartlands
Embracing the complexity of compliance (wow, what a name for a rock band – Complexity of Compliance!) is highly beneficial for any financial institution, let alone a regulated digital securities issuance platform such as Smartlands. Granted, faced with the requirement for more detailed KYC checks, our compliance team may bend, but it will never break. Technology is key here: our proprietary regtech (regulatory technology) approach to fully automated audits allows Smartlands to remediate client files avoiding non-compliance quickly.
Smartlands automated workflow solutions give both issuers and investors on the Platform the productivity boost they need to navigate 5MLD and ensure the highest regulatory standards successfully. By standardising the KYC/AML algorithm, we remove inconsistent processes and better integrate complex global datasets, thus helping our clients to save both time and money.