The 4th Anti Money Laundering Directive or ‘4AMLD’ is the EU response to the FATF 40 recommendations dated February 2012 and was required to be incorporated by EU member states by 26th June 2017. It follows the 3AMLD and is proceeded by the 5AMLD.
Below is a downloadable link for the full EU 4th AML Directive.
A number of entities/individuals which prior to this directive went unregulated shall now be classed as ‘obliged entities’ under 4AMLD. Now, more businesses must comply with past and future directives’ regulations, including Customer Due Diligence (CDD), Enhanced Due Diligence (EDD), Know Your Customer (KYC) requisites, etc. ‘Obliged entities’ under the 4th Anti Money Laundering Directive encompass all credit and financial institutions (FIs), all gambling services and certain Designated Non-Financial Businesses and Professions (i.e. lawyers, real estate agents, precious metal/stones dealers, notaries & accountants).
Now “occasional transactions” – such transactions that are outside of a regular business relationship – of €10,000 or more are additionally covered under the regulations, as are transactions that the EU defines as a “transfer of funds” exceeding €1,000. However, EU member states are able to set lower bar thresholds if they wish.
4AMLD will mean more transactions will need to be monitored and CDD must be undertaken for a wider encompassing list of clients.
Member states of the EU are now required to ensure that businesses and individuals operating within their borders regularly update firms’ ownership info in a central registry which is readily available to governmental authorities, other “obliged entities”, and public entities with legitimate reasons for requests (i.e. Non-Government Organizations).
4AMLD makes amendments to the legal definition of Ultimate Beneficial Owners (UBOs). Whereas prior to this, a UBO was determined as someone/thing that owns/controls >25% of equity/voting options in the legal entity – now the 4th Anti Money Laundering Directive will allow that senior managers to be treated as UBOs in the circumstances where the mentioned criteria is unable to be determined.
The 4th Anti-Money Laundering Directive has broadened the definition of PEPs (Politically Exposed Persons) to encompass those individuals that are domestic, whereas the prior directives have classed PEPs as those in other jurisdictions transacting through a financial institution.
RBA (the Risk-Based Approach) requirements have been strengthened with this directive. Now, “obliged entities” must identify/analyze risk, taking into account clients, applicable jurisdictions/geo area, services/products, and transactions/delivery channels. Risk assessment details must be kept up-to-date and readily available to government regulators. Independent audits are required to be commissioned by bigger firms as a part of their internal compliance systems.
4AMLD removes certain RBA exemptions – such as the quick utilization of Simplified Due Diligence (SDD). This is due to the fact that FIs and other financial intermediaries were overly using this system. Now, to deploy SDD, businesses have to demonstrably show that the identifying of a firm for SDD is because they qualify as a low-risk business, by giving a robust rationale for SDD use. Thus fewer clients shall qualify for SDD with more now needing CDD/EDD.
4AMLD obliges entities to implement risk-based systems that determine if clients/UBOs are Politically Exposed Persons (PEPs). To establish a business relationship with PEPs, Enhanced Due Diligence (EDD) must be conducted, as well as having senior management grant approval. Enhanced Due Diligence (EDD) procedures must continue for at a minimum of 1 year (12 months) after a PEP vacates their official post, however, EU members can elongate this time frame.