VIXIO Blog | What does the new EU AML/CTF framework mean for payments?

What does a stronger EU AML/CTF framework mean for payments?

Following the adoption of an action plan for a comprehensive EU policy on preventing money laundering and the financing of terrorism in May 2020, on July 20, 2021, the European Commission published a package of four proposals to strengthen the anti-money laundering and counter-terrorism financing (AML/CTF) regulatory framework further. 

Only two days after the European Commission released its proposals, the UK government launched two consultations to review its own AML/CTF regime.

At VIXIO, we report on hundreds of regulatory developments related to AML/CTF each year. With so much activity, it can be difficult to ascertain the implications of proposals to compliance processes. So, what do these changes actually mean for payments firms?

 

Why did the EU introduce the proposals?

The cost of suspicious transactions is significant, with Europol estimating it to be hundreds of billions of euros, totalling 1.3 percent of the EU’s GDP in 2014. 

The four EU reports, which informed the action plan, recognised that divergences in the implementation of the Anti-Money Laundering Directives (AMLDs) across the EU and lack of harmonisation in supervision have been advantageous for criminals purposes. Development of new technologies and trends, as well as the increase of connection within EU financial markets, have contributed to making the regulatory framework outdated, and therefore a need to fill the gaps within it and make it more adaptable to changes. 

 

What do the proposals provide for PSPs and crypto-asset providers?

Financial entities, including payment services providers (PSPs) and virtual asset service providers (VASPs), will be under direct supervision of the new EU AML Authority (AMLA), with the aim of harmonising the application of the AML/CTF framework across the EU.

A new AML/CTF regulation, which unlike the existing AMLDs will be directly applicable in EU member states. It will also have a wider scope that encompasses crypto-asset service providers, but bans anonymous crypto-asset wallets. A limit of €10,000 for large cash transactions will also be recommended, although member states could provide even lower ones.

 

Another anti-money laundering directive to replace the existing 4th and 5th AMLDs, the 6th AMLD has been introduced; one of the aims of which is to enhance the exchange of information between national financial intelligence units (FIUs).

 

Additionally, a revision has been made to the 2015 Regulation on Transfers of Funds to expand the scope to enable trace transfers of crypto-assets, as well as implement the “travel rule”, which will require these entities to collect data to identify the sender and the beneficiary of the transaction and make them available to the relevant authorities.

 

The UK follows suit

Although the UK has left the EU, it does not appear to want to be left behind and it has followed the EU’s lead by launching its own review of its AML/CTF regulatory and supervisory regime. It has also proposed amendments to the ML/TF and Transfer of Funds (Information on the Payer) Regulations (MLRs) 2017 Statutory Instrument (SI) 2022, with the aim of aligning with FATF’s international standards, including implementing the travel rule for crypto-assets. 

 

What’s next?

Compliance teams may think that there is plenty of time before any action needs to be taken, but this isn’t necessarily the case, especially for the UK. 

The EU’s AML/CTF proposals will follow the legislative process, and the AMLA is expected to start its operations in 2024 and its direct supervision in early 2026. Therefore, until then, the existing framework will continue to apply.

However, the UK appears to be moving faster, as the report on the findings of the review of the UK’s AML/CTF regulatory and supervisory regime will be published in less than a year (no later than June 26, 2022) and the changes deemed necessary to the MLRs will be laid out in Spring 2022.

Payments firms and crypto-assets providers operating in the EU and UK should be mindful of these changes as they imply stricter measures for them to comply with, affecting such areas as supervision, cash limits and know your customer (KYC) procedures.

More details about the EU proposals and the UK consultation can be found here.

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