AML/KYC 2020 – how 2019 changed the landscape of global regimes?

Copy pasting your 2019 AML/KYC compliance strategy to 2020 plan will not do the job. Businesses need to change their AML/KYC compliance strategy to comply with the latest regulations. 

Anti Money Laundering (AML) and Know Your Customer (KYC) regimes evolved during 2019 on a global scale. Regulatory authorities like FATF, FinCEN, FINTRAC, and the EU government took some rigid steps to make KYC and AML compliance a global phenomenon. 

Regulatory and supervisory authorities are bringing all the industries under the radar to make AML/KYC compliance inevitable for reporting entities. The Danske Bank and Swedbank scandal made the global financial sector learn the lesson and to take compliance seriously.  Also, the heavy fines charged from non-complaint online businesses like gaming, cryptocurrencies, etc. initiated the trend of AML/KYC compliance among these industries. 

Below is a brief review of some major changes that occurred in KYC and AML regimes around the globe in 2019. 

Fifth AML Directive (AMLD 5) of the EU to be implemented in 2020

EU introduced the fifth AML directive in 2019 which is all set to change the AML compliance in the EU. The businesses are required to comply with this law by January 2020. 

AMLD 5 introduced the amendments for financial institutions, prepaid cards, credit institutions, real estate, legal sector, and virtual currencies, etc. The new directive requires the reporting entities to practice enhanced due diligence. 

The identity verification threshold on remote transactions of prepaid cards was reduced to EUR 50. Also, AMLD5 called for a reduction in the threshold of anonymous prepaid cards – from €250 to €150. Now the prepaid card providers will have to practice customer due diligence on every customer making a transaction or depositing more than €150 in his prepaid card account. This will help the authorities control the anonymous use of prepaid cards for illegal fund transfers. 

Virtual currencies need to apply customer due diligence just like traditional financial institutions. So thorough KYC and AML screening of customers is inevitable for businesses. 

FATF digital ID Systems Guidance

FATF took the Regtech initiative back in 2017 by showing a positive attitude towards technological advancements in the financial industry and regulatory framework. 

FAFT issued a guidance paper for digital ID systems. The guidance paper is open to suggestions from the stakeholders. The stakeholders of this guidance are the regulatory and supervisory authorities, businesses and government agencies. 

The guidance provides a brief insight into the process, components and technical standards of digital ID systems. It referred to NIFT Digital ID Guidelines and EU’s EIDAS Regulations

As FATF is a global authority and has several member countries from every corner of the world it is projected to make a huge change in global AML/KYC compliance practices of businesses. 

FATF recommendations for the legal sector, virtual assets

In June 2019, FATF gave revised recommendations for the legal sector and virtual assets. Now, these sectors in the member countries of FATF are required to practice thorough AML and KYC screening on their customers. Legal professionals are guided to verify the identity of the Ultimate Beneficiary Owners (UBOs) of the businesses they work with. 

Also, businesses dealing with virtual assets (cryptocurrencies,etc.) are required to perform AML/KYC screening on their customers just like the financial institutions. 

FATF also drafted the recommendations for art dealers, weapon dealers, and precious metal dealers to exercise regulatory compliance. These regulations are drafted to bridge any loopholes in the regulatory framework. 

Global authorities becoming more stringent towards real estate

Global regulatory authorities are becoming stringent towards real-estate. This sector is commonly used for money laundering. Canada, Singapore, UK, and Germany are some countries that imposed owner verification regulations on real-estate in the past years. In 2018, (AML) legislation was introduced according to which foreign owners were supposed to identify themselves. The purpose of this bill was to find out who is the owner of a particular real estate property. By 2021, the registry will be made public. 

AMLD 6

The AMLD 6 was also proposed in 2019. Sixth Anti-Money Laundering Directive (AMLD6) highlights a stringent framework to combat money laundering and terrorist financing. It extends the scope of criminal liabilities and entities with an updated list of predicate offenses. AMLD6 came up with tougher penalties and widens the criminal liability to legal persons. 

AUSTRAC all set to regulate MSBs

AUSTRAC launched a campaign against the unregistered money services businesses (MSBs). It requires the MSBs to register with AUSTRAC and to follow the AML/KYC regulations carved for them. Money transfer businesses that will not register with AUSTRAC will be liable for a fine of $420,000, seven years jail or both. 

These new regulations are implemented to mitigate money laundering and terrorist financing in the financial infrastructure. The MSBs are exploited by financial criminals due to a lack of customer due diligence practices in this sector.

Other than AUSTRAC, FATF and FINTRAC also adopted a risk-based approach towards MSBs. 

The U.S treasury international financial institutions initiative

The U.S expanded its counter-terrorism powers and now targets the international financial institutions around the world that aid the terrorist groups working in the U.S. Also it added three Korean groups, namely, Bluenoroff, Lazarus Group, and Andriel into sanctions lists. 

The UK expanding the scope of MLA-2017

The UK also amended its KYC and AML regulations and expanded the scope to an international level. The Money laundering Act (MLA-2017) of the UK was amended. The UK-based businesses will practice the MLA rules in their international affiliates operating in non-EEA states. 

To wrap up, 2019 was a phenomenal year for KYC/AML regulations where the authorities not only worked on enhancing the AML regulations but also on improving the compliance habit of liable entities.  

The fraud and planned crime cases in the past few years made the regulatory authorities to draft more focused and detailed KYC/AML regulations to mitigate money laundering, terrorist financing, and crimes related to identity theft. One fake or stolen identity if used wrongfully could initiate a chain of crime that could affect a lot of stakeholders. 

The changes that happened in 2019, made regulatory compliance inevitable for businesses. Many future-oriented businesses are using KYC/AML screening solutions to practice global compliance. Because there are just two ways out of this situation, either it is compliance that leads to fraud-free growth or non-compliance that leads to hefty non-compliance penalties and fraud losses.