Zac Cohen, general manager at Trulioo, explains why banks need to prepare ahead for the 6th EU Anti-Money Laundering Directive (6AMLD) due to come into effect in June 2021.
Defining today’s money laundering crimes
For risk and compliance professionals operating within the banking sector, it may seem almost inconceivable that further anti-money laundering (AML) regulation is already appearing on the horizon.
With many firms still bedding down new systems and processes to comply with the 5th EU Anti-Money Laundering Directive (5AMLD), additional rules to counter the growing global threat of money laundering were introduced by the European Parliament towards the end of 2018. The 6th EU Anti-Money Laundering Directive (6AMLD) is due to be transposed into national laws by December 2020, with firms within member states required to implement the new regulations by 3rd June 2021.
6AMLD is significant because it provides clarification and context around many of the new money laundering threats which are emerging within today’s increasingly digital-driven global economy. If 5AMLD was about expanding the scope of businesses’ obligations in countering money laundering, 6AMLD provides the detailed definition of these requirements. As is often the case, regulators have cast the net wide in order to tackle these issues, but are now refining these rules further down the line to make them more effective and practical.
The new regulation lists 22 predicate offences relating to money laundering, providing clear definitions of each specific crime. Importantly, the last of these offences is cyber-crime, which for the first time is included within AML regulation. This is significant because it enables organisations and regulators to root out money laundering crimes more easily and effectively across a wide range of online activities.
A focus on individuals
In addition to this, 6AMLD is noteworthy because it is very clear in its objective to pinpoint the individuals within an organisation who are responsible for money laundering crimes. The introduction of new offences such as ‘aiding and abetting’ and ‘attempting and inciting’ also extends criminal liability from those directly responsible for converting the proceeds of crime, to accomplices in the laundering process. No longer can individuals hide behind a business entity; the regulation is designed to provide complete transparency around who owns and controls these entities.
And of course, the increasingly punitive penalties will grab the headlines, with minimum prison sentences increasing from one year to five years.
Getting ready for 6AMLD and beyond
While 6AMLD is very much consistent with the spirit of both 4AMLD and 5AMLD, it will require many banks and financial institutions to review their AML monitoring processes and identify areas for improvement within their customer onboarding and operational models.
This will undoubtedly mean further adoption of regulatory technology (RegTech) to automate onboarding processes and tap into a far more comprehensive pool of information on prospective customers.
However, while 6AMLD is set to be the next big deadline for risk and compliance professionals, it should be noted that regulation won’t stop there; as new money laundering threats continue to evolve rapidly across the global economy, the pace and scale of new regulation in this area will accelerate exponentially.
Faced with this level of complexity and change, banks must take a broader view of their compliance and operational processes, and adopt new best practices and technologies in order to stay on the front foot.
So rather than taking a reactive approach and focusing solely on being compliant with 6AMLD come June 2021, banks should also focus on instilling a more agile and flexible approach to compliance and strive to establish a governance framework which operates at a higher level than current regulation.
Many banks are now realising that a ‘do the bare minimum’ attitude to compliance is no longer sustainable in the digital economy. Instead they are coming to view compliance, and in particular the adoption of RegTech, as a revenue generator and key strategic differentiator.
By ensuring they have the flexibility to adapt to changing regulatory requirements easily and quickly, banks can ensure they can be first to market with new products and services, while simultaneously minimising risk.
Zac Cohen is a general manager at Trulioo, a Canadia-based SaaS company