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Key Contacts
The final elements of the European Commission’s proposed legislative package of enhanced anti-money laundering and counter-terrorist financing (AML/CFT) rules have been adopted by the European Parliament.
On 24 April 2024, the European Parliament adopted the proposed texts for the sixth anti-money laundering directive (AMLD6), a regulation on anti-money laundering and counter-terrorist financing (Single Rulebook) and a regulation for the establishment of a regulatory authority for anti-money laundering (AMLA Regulation). These legislative proposals, together with the Recast Funds Transfer Regulation (Regulation (EU) 2023/1113), which was published in the Official Journal on 9 June 2023, form the European Commission’s new AML/CFT package.
The texts adopted by the European Parliament on 24 April 2024 reflect the texts that were politically agreed by the Parliament and the Council of the European Union in December last year.
In this article we outline some of the key aspects of the legislative proposals in the Single Rulebook, AMLD6 and the AMLA Regulation.
Single Rulebook
The Single Rulebook Regulation will harmonise AML/CFT rules throughout the EU, closing potential loopholes used by criminals to launder proceeds of crime and finance terrorist activities through the financial system. In order to achieve this, the provisions in the Fourth Anti-Money Laundering Directive will be enhanced and moved to the Single Rulebook and become directly applicable. The Fourth and Fifth Anti-Money Laundering Directives will be repealed. The implementation of directly applicable AML/CFT rules will eliminate the issues presented by the divergent and fragmented approaches taken by EU Member States under the current framework.
Scope
Significantly, the list of obliged entities will be expanded under the Single Rulebook. For example, all types of crypto-asset service providers (CASPs) will be subject to the same requirements as those imposed on banks and other types of financial institutions. Crowdfunding service providers and crowdfunding intermediaries will also be obliged entities, as will mortgage and credit intermediaries and persons trading, as a regular or principal professional activity, in certain high-value goods, such as jewellery and watches of a value exceeding €10,000, vehicles of a value exceeding €250,000 and aircraft and boats of a value exceeding €7,500,000.
Customer due diligence
The existing requirements regarding the customer due diligence process will be harmonised and clarified, and in some cases enhanced, including with respect to identification and verification policies and procedures, enhanced due diligence and identification of beneficial ownership. Regulatory technical standards will also be developed by the new regulatory authority for anti-money laundering (AMLA) on the information necessary for the performance of customer due diligence.
Cash transactions
The Single Rulebook will introduce a maximum limit of €10,000 in respect of cash transactions relating to commercial arrangements, whether a transaction is carried out in a single transaction or in several linked transactions. Member States will, however, have discretion to impose a lower maximum limit at national level. In addition, obliged entities will be required to identify and verify the identity of any customer who carries out an occasional transaction in cash between €3,000 and €10,000. This new rule reflects the higher exposure to risks that obliged entities face due to their gatekeeping role.
High-value goods trading
There are new requirements relating specifically to the purchase of high-value vehicles, aircraft and boats. To ensure that information on the ownership of these high-value goods is available to national competent authorities, traders of these goods, banks and financial institutions will be required to inform the relevant financial intelligence unit (FIU) of transactions concerning the sale of these goods by customers for private, non-commercial use. In connection with this new requirement, banks and financial institutions will have to collect information from their customers to determine whether the intended use of the high-value goods is for commercial or non-commercial purposes.
Third party reliance
The circumstances under which obliged entities can rely on customer due diligence performed by another obliged entity are clarified, including in respect of group reliance arrangements, and a risk-based approach is confirmed. Obliged entities will be prohibited from relying on obliged entities established in high-risk third countries or third countries with AML/CFT compliance weaknesses. Obliged entities will also be required to take into consideration guidelines developed by AMLA regarding the conditions in which reliance can be placed on another obliged entity.
Beneficial ownership
The beneficial ownership provisions will be amended by the Single Rulebook and AMLD6. The revised framework clarifies the obligations for legal entities and trustees to identify and verify their beneficial owners. While the 25% beneficial ownership threshold has been retained, the provisions relating to beneficial ownership will be harmonised and more transparent, with the meaning of beneficial ownership to be based on two components, ownership and control, which will need to be analysed to identify all natural persons who are the beneficial owners.
When will the Single Rulebook apply?
Based on the current text, the Single Rulebook will apply three years from the date it enters into force (likely mid-2027), except with respect to obliged entities that are football agents and professional football clubs, in which case the Single Rulebook will apply five years from the date of its entry into force.
AMLD6
The provisions in AMLD6 focus on beneficial ownership, FIU responsibilities and supervision at a national level. AMLD6, therefore, aims to improve the organisation of national AML/CFT frameworks through greater co-operation between national competent authorities and FIUs.
Beneficial ownership
The revised framework clarifies the obligations for legal entities to report information on the identity and verification of their beneficial owners to the central beneficial ownership register in the relevant Member State.
To ensure adequate, accurate and up to date beneficial ownership information, AMLD6 prescribes further powers to the authorities in charge of the central registers to verify the beneficial ownership information submitted to them, such as the power to perform on-site inspections at the premises of legal entities that are registered in circumstances where there are doubts regarding the accuracy of the information submitted.
Furthermore, in order to reduce the risks associated with legal entities that are established outside of the EU, the new rules require non-EU legal entities to register their beneficial ownership in the central beneficial ownership register where they have a link with the EU, for example if they own real estate in the EU.
FIUs
AMLD6 contains detailed provisions regarding the activities and powers of FIUs. As well as access to central beneficial ownership registers, FIUs will gain direct access to financial, administrative and law enforcement information, including tax information and information on funds and assets frozen pursuant to financial sanctions. A framework for FIUs to suspend or withhold consent to a transaction that raises suspicions of money laundering or terrorist financing will be introduced to enable FIUs to assess the transaction and suspicions and share the results with the relevant national competent authorities to allow for appropriate action to be taken.
National supervision
Each Member State will be required to ensure that obliged entities are subject to adequate and effective supervision under a risk-based approach. National competent authorities will be required to report suspicions of money laundering or terrorist financing with a cross-border element to FIUs.
When is AMLD6 due to be transposed?
Based on the current text, AMLD6 will be required to be transposed into national law within three years of the date on which it enters into force (likely to be mid-2027), subject to certain derogations.
AMLA Regulation
One of the most significant changes under the Commission’s package will be the creation of AMLA, which will establish an integrated AML/CFT supervisory system for the financial and non-financial sectors.
What will the role of AMLA be?
AMLA will have two main roles, AML/CFT supervision and supporting the FIUs.
In relation to the non-financial sector, AMLA will carry out indirect supervision in its role as the central authority, ensuring coordination between national competent authorities and thus, consistent application of AML/CFT rules within the EU.
In the financial sector, AMLA will directly supervise selected credit and financial institutions that are deemed to pose the highest risk of money laundering or terrorist financing and operate in a number of Member States. These institutions will be directly supervised by joint supervisory teams led by AMLA, which will be comprised of staff from the national supervisory authorities in Member States where each institution is active. As well as directly supervising the highest-risk institutions, AMLA will monitor and coordinate supervision of other financial entities by national competent authorities to ensure high-quality supervision and supervisory convergence across the internal market.
In its work to support FIUs, AMLA will facilitate co-operation, information exchange and identification of best practices among FIUs and contribute to the harmonisation of FIUs’ practices for the detection of suspicious flows of funds across borders. It will carry out these tasks by establishing standards for reporting and information exchange, organising peer reviews among FIUs, and by hosting and developing the FIU.net system used by both FIUs and Europol to exchange and cross-match information.
When will AMLA commence its activities?
AMLA will be established in 2024, in Frankfurt, shortly after the AMLA Regulation is published in the Official Journal. Under the current text, AMLA will begin most of its activities by 1 July 2025, reaching full staffing in 2027, and will begin direct supervision of selected credit and financial institutions in 2028 after the new AML/CFT framework is applicable.
Recast Funds Transfer Regulation
The Recast Funds Transfer Regulation extends existing rules on traceability of transactions to crypto-assets. It will repeal and replace the existing Regulation on information accompanying transfers of funds (Regulation (EU) 2015/847) to ensure that crypto-asset transfers can be traced in the same way as fund transfers. The Regulation will apply to payment service providers and CASPs from 30 December 2024, to coincide with the final application date of the Markets in Crypto-Assets Regulation.
Next steps
The Council of the European Union must now formally approve and adopt the texts of the three legislative proposals. Based on the Council’s letter to the European Parliament, dated February 2024, the Council is expected to approve the Parliament's position. Following Council approval, the adopted texts are expected to be published in the Official Journal of the EU (likely in summer 2024), after which the legislative acts will enter into force.
Banks, financial institutions and other obliged entities will need to carefully consider the changes introduced under the legislative package and conduct internal reviews to assess what updates will be required to their AML/CFT frameworks, including to policies, procedures, systems and controls. The Irish transposing legislation and EU technical standards and guidelines, when published, will also need to be taken into consideration. Such exercises will be particularly important given that the establishment of AMLA will likely result in increased supervision of institutions within its direct supervision and also for other institutions, as national competent authorities will be under increased scrutiny by AMLA.
For further information in relation to this topic, please contact Patrick Brandt, Partner, Ciara Brady, Senior Associate, Louise Hogan, Senior Associate, Sarah Lee Senior Knowledge Lawyer, Anne O’Neill , Senior Knowledge Executive or any member of ALG's Financial Regulation Advisory team.
Date published: 20 May 2024
