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The Evolving Landscape of Global AML Regimes

Financial crime is increasing at a rapid pace and controlling financial criminals is the primary goal of global regulatory authorities. The latest technologies are equally utilized by criminals and businesses. For example, the advent of FinTech paved many loopholes in the FinTech industry and it also increased the magnitude of financial crime around the globe. As per a report from the United Nations, an amount equal to 2% to 5% of global GDP is lost to money laundering.

In an effort to counter the increasing financial crime the regulatory authorities are becoming vigilant in anti-money laundering efforts. New KYC/AML laws are introduced, regarding AML compliance and reporting, etc. Some noteworthy amendments include the UK’s fifth AML directive, FATF recommendations, Canadian changes in PCMLTFA and the U.S changes in its sanctions lists.

Below are a few changes that have been made in the KYC/AML regulations in the recent past:

Fifth AML Directive of the European Union

The European Union(EU) is one of the most vigilant regions when it comes to compliance and AML. The fifth AML directive aims at filling the loopholes in the AML laws in the EU.

The major features of the fifth AML directive are as follows :

  1. The prepaid cards are required to run identity verification on their customers when they make a transaction or deposit an amount above EUR 150 monthly. Previously this threshold was EUR 250. The major reason is to reduce the use of prepaid cards for money laundering and terrorist financing.
  2. In case the customers make an online transaction of above EUR 50 through his prepaid card, the card provider company will run identity verification on that customer before making the transaction.
  3. The art dealers, virtual currency, expensive metals dealers, etc are required to exercise KYC and AML compliance measures under the fifth AML directive.
  4. The EU will publish a list of blacklisted countries. 
  5. The companies and trusts are required to share the information related to their Ultimate Beneficiary Owners (UBOs). Also, the beneficial ownership threshold reduced from 25% to 10%.

The Recommendations of FATF

FATF gave some crucial recommendations to its member states regarding AML. The key changes introduced in June and September are as follows:

  1. The FATF requires the legal sector to exercise KYC and AML screening on the UBOs of their customers.
  2. The virtual currency businesses are required to run KYC and AML screening on their customers just like the fiat businesses. Also, the transactions above $1000 should be reported to the concerned authorities.

Canada’s AML Regulations

Canada changed its AML regulations for cryptocurrencies and money service businesses to reduce the exploitation of the businesses in this industry. The changes are made to align the Canadian regulations with the global AML regulations of FATF. Below are the key changes made in this regard:

  • The Money Service Businesses (MSBs) are required to practice due diligence, recording, and reporting just like the fiat businesses.
  • The MSBs are required to get registered with regulatory authority FINTRAC. The financial institutions are not allowed to conduct business with non-registred MSBs.
  • Digital (Online) KYC is possible. The reporting entities are allowed to use photocopies or scanned images of identity documents for KYC compliance purposes.
  • AML reporting regarding any transaction above the predefined threshold should be made within 3 business days. Previously the businesses were required to report within 30 days.

The UK Expanding the Scope of Its AML Regulations

The UK made some amendments to its Money Laundering Act (MLA-2017). The amendments have increased the scope of AML regulations of the UK to non-EEA states.

The businesses originated from the UK are required to practice the EU AML regulations in their subsidiaries operating in non-EEA states. The businesses are required to report any counter force that they face in the implementation of this law.  In case they are unable to do so they are instructed to halt some of their operations or complete business in that country.

The U.S Expanding the Scope of its Counter-terrorism Activities

The U.S. Treasury increased the scope of its counter-terrorism activities to a global level. The regulatory authorities in the U.S will exercise strict action against the international financial or non-financial institutions helping the U.S originated terrorist groups or their supporters.

Also, the U.S treasury added three Korean groups in its sanctions list due to their involvement in global cybercrime and ransomware crime with financial institutions.

To wrap up, changes in the regulations are targeting to reduce financial crime at a global level. Identity verification and in-depth KYC/AML screening of customers is in-evitable for the businesses.

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