KYC policies and anti-money laundering directive amendments

AMLD 5 and AMLD 6

Although authorities are busy with the corona pandemic, it should not be forgotten that the sixth anti-money laundering Directive (AMLD6) has now been published in the Official Journal of the European Union. It is intended that this amendment will be implemented in Dutch legislation by 3 December 2020. This is despite the fact that the fifth anti-money laundering directive (AMLD5) has not yet been implemented. Although this should have taken place on 10 January 2020, this date was not met and the final date has not yet been set. With the AMLD5 coming into force, crypto providers will fall within the scope of the Directive. AMLD6 establishes, among other things, minimum rules for criminal liability for money laundering.

Statement of the European Banking Authority

During this period, authorities stress the particular need for financial firms to strictly comply with anti-money laundering measures. For example, the Netherlands Authority for the Financial Markets (AFM) indicates that financial enterprises must be particularly alert to money laundering during the corona pandemic. The European Banking Authority (EBA) has also warned against this, announcing in a statement made on 31 March 2020 that even during this pandemic, financial institutions must take (and strengthen) measures to mitigate the risk of money laundering and the financing of terrorism.

KYC policy changes and AMLD 5

In this blog I will briefly explain what changes have been made in the know your client policy (KYC policy) as a result of AMLD5. In my previous blog, I explained the registration requirements for crypto providers.

The most important measures are the following:

  1. Should it be necessary to designate a member of senior management as the ultimate interested party (UBO), additional measures shall be taken to identify this member. The additional measures consist, inter alia, of recording the measures taken to establish their identity and the difficulties encountered by the financial enterprise during the verification process;
  2. A client survey should not only be carried out on new clients, but also on existing clients. Depending on the risk sensitivity of a client, it should be determined how often the client survey needs to be updated. It is in any case necessary to update the client survey where, among other things (1) relevant circumstances have occurred to a client, (2) a financial enterprise is obliged under the Money Laundering and Terrorist Financing (Prevention) Act (Wwft) to contact the client to evaluate information relating to the UBO and (3) a financial enterprise is obliged to update the client survey within the framework of administrative cooperation in the field of taxation;
  3. The necessary research into the background and purpose of the transactions has been more clearly formulated. These are transactions in which at least one of the following conditions is met:
  4. (i) Complex transactions;
  5. (ii) Unusually large transactions;
  6. (iii) Transactions with an unusual pattern; or
  7. (iv) Transactions without a clear economic or lawful purpose;
  8. In such transactions, financial companies are required to increase the intensity and nature of monitoring of the business relationship in question. This is therefore not a substantive change, but merely a clarification of that obligation.
  9. A financial enterprise is not relieved of its obligation to carry out an independent examination to identify the UBO if it is already in possession of proof of registration of this UBO in the Trade Register. The financial enterprise must independently identify the UBO. In addition, if there is a discrepancy between the outcome of the identification of the UBO and that stated in the UBO register, the financial enterprise must report this;
  10. A financial enterprise is required to apply enhanced customer due diligence if a client is domiciled, established, or has its registered office in a so-called (third) high-risk country. Additional measures to this enhanced client due diligence are required, i.e. obtaining additional information about the client including:
  11. (i) clients and their UBOs;
  12. (ii) the purpose and nature of the business relationship;
  13. (iii) the origin of the funds used in the business relationship or transaction and the source of the assets of these clients and of these UBOs;
  14. (iv) the background to, and reasons for, these clients' proposed or executed transactions;
  15. and
  16. (v) approval must be obtained from senior management for the establishment or continuation of a business relationship;
  17. (vi) the financial enterprise should subject the business relationship with, and the transactions of, these clients to enhanced scrutiny (including increasing the number and frequency of checks and the frequency of updating the data on these clients and UBOs and selecting transaction patterns for further examination).
  18. If you have any questions or comments about the registration requirement for offering crypto services, please contact us.

Julia
van Kuijk

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