Earlier this year, the Council of the EU and the European Parliament reached a mutual agreement on a package of common EU anti-money laundering (AML) rules. These proposals, currently in their first reading in the EU legislative process, represent a significant shift in the regulation and supervision of financial activities across the EU. They aim to strengthen the protection of the financial system against illegal activities.
What Are the Main Changes in This Package? What Will Happen Next and When Will These Changes Be Reflected in Our Legal Order?
Main Changes to the AML Law
The revision of the AML framework formally consists of three legislative instruments:
- Proposal for a Regulation on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing (“AMLR“).
- Proposal for a sixth Directive on mechanisms to be put in place by Member States to prevent the use of the financial system for the purpose of money laundering or terrorist financing (“AMLD6“).
- Proposal for a Regulation establishing an Anti-Money Laundering and Anti-Terrorist Financing Authority (“AMLAR“).
The latest version of the regulations can be found here: AMLD6, AMLR and AMLAR.
AMLR: Extending the Scope of AML Regulation and Introducing New Rules
The European Union is introducing key changes in the area of anti-money laundering to strengthen regulation and increase transparency. The scope of the AML-regulated sector will be expanded to include:
- Service providers related to cryptocurrency,
- Crowdfunding platforms,
- Luxury goods dealers,
- Professional football clubs and agents.
While these changes will bring new sectors under AML regulation, some of these areas, such as cryptocurrency services and crowdfunding platforms, are already included in existing Czech legislation or will be covered by the forthcoming amendment to Act No. 253/2008 on certain measures against the legalization of proceeds of crime and terrorist financing. However, professional football clubs and agents will be subject to regulation five years after the new regulation comes into force, which is two years longer than the other newly included sectors.
Furthermore, Article 59 AMLR will introduce an EU-wide limit on cash payments above €10,000 for persons trading in goods or services (except for dealers in precious metals and stones). This means a complete ban on accepting or making cash payments above €10,000 (or the equivalent in another currency) due to the increased risk of money laundering and terrorist financing associated with such large cash payments.
Previously, traders making or receiving cash payments above €10,000 were subject to AML obligations, but this was deemed insufficient.
Obliged persons operating in higher-risk sectors who conduct occasional transactions of €3,000-10,000 will now be required to identify and verify the client, a requirement that previously only applied to transactions of at least €10,000.
The introduction of enhanced controls is also a new feature in cases where business relationships with high-net-worth clients involve handling large amounts of assets.
The European Commission will identify third countries with significant strategic deficiencies in their national anti-money laundering and counter-terrorist financing regimes, categorising them as high-risk third countries.
For occasional transactions and business relationships involving these third countries, Article 23 of the AMLR will require obliged persons to apply enhanced control measures. Additional enhanced control rules will also be introduced for cross-border correspondent relationships (Article 30 AMLR).
New obligations for credit and financial institutions will include collecting sufficient information about the respondent institution, such as the nature of its business, its reputation, and the quality of its supervision. Establishing or maintaining a correspondent relationship with a bank incorporated in a country where it has no physical presence—no branch or actual management—will be prohibited.
There are also changes regarding beneficial owners and politically exposed persons (PEPs). Under the new definition in Article 2 of the AMLR, members of the governing bodies of political parties that hold seats in national executive or legislative bodies or in regional or local executive or legislative bodies representing constituencies with a population of 50,000 or more will be considered PEPs. Additionally, siblings will be included in the group of family members of PEPs.
The definition of a beneficial owner in companies has been simplified in Article 42 of the AMLR to an individual who directly or indirectly controls the company, whether through ownership (owning 25% plus one share or voting rights or other ownership interest in the company, including in the form of bearer shares, at all levels of ownership) or by other means.
AMLD6: Registers of Beneficial Owners and Increased Liability
The adoption of the Sixth Amendment to the Anti-Money Laundering Directive will expand the data recorded in the Register of Beneficial Owners. This register will now include information on the beneficial owners of legal persons registered outside the EU who enter into business relations with an obliged person in an EU Member State or acquire real estate in that territory.
However, the property registers introduced in Article 16 of AMLD6 will not have to be publicly accessible; instead, they will be accessible to the competent authorities through a single access point. The information in these registers will need to be verified, and entities linked to sanctioned persons must be identified in the registers as part of the measures against sanctions evasion following the Russian invasion of Ukraine.
The adoption of the Directive will also strengthen the responsibilities and powers of Financial Intelligence Units (FIUs) (Article 17 AMLD6), giving them immediate and direct access to financial and administrative information, law enforcement information (including tax information), and information on funds and other assets frozen based on targeted financial sanctions.
Other changes include emphasising the importance of supervisory authorities, strengthening their cooperation, and enhancing risk assessment at both the EU and national levels. For example, the obligation for public authorities to supervise statutory bodies acting as regulators is introduced.
A harmonised risk-based approach to supervision will be developed through a common risk categorisation tool. Additionally, AML/CFT colleges will be established (Article 36 AMLD6).
AMLAR: New Supervisory and Coordinating Authority
The purpose of the AMLAR Regulation is to establish an EU-wide Office for Combating Money Laundering and Terrorist Financing. This office will be responsible for AML/CFT supervision and will play an important advisory role, typically issuing interpretative opinions. It will supervise a limited number of high-risk obliged entities (e.g., credit institutions established in at least seven Member States or other entities specified in Article 12 of the AMLAR) and will also have an indirect supervisory role over other obliged entities.
The Authority’s indirect supervisory role will involve coordinating and supervising national supervisors in the area of AML/CFT, as outlined in Article 28 of the AMLAR. The AMLA will also have the power to adopt, through implementing technical standards, binding standards and templates for reporting suspicious transactions and activities by obliged persons to FIUs.
The AMLA will also be responsible for creating and maintaining a central database of information relevant for AML supervision, such as a list of all supervisory authorities, statistical information on the type and number of obliged persons in each Member State, binding measures and sanctions taken in the context of supervision of individual obliged persons, and other information pursuant to Article 11 of the AMLAR.
When Will We See the Changes?
The first reading of the draft AMLR is currently underway in the Council of the EU. This Regulation will enter into force on the 20th day after its publication in the Official Journal of the European Union and will be applicable three years after its entry into force.
Similarly, the AMLD6 proposal is still in its first reading in the EU Council. This Directive will enter into force on the 20th day after its publication in the Official Journal of the European Union, and Member States must bring into force the necessary laws, regulations, and administrative provisions to comply with this Directive no later than three years after its entry into force.
As for the proposal for a regulation on the AMLA, the EU Council and the European Parliament reached a preliminary agreement on 13 December 2023. Since then, there has been significant development, including a public hearing on the seat of the AMLA on 30 January 2024.
However, the process of adopting the draft regulation is still in its first reading in the EU Council, with the last meeting taking place on 29 February. It is expected that the changes in the area of anti-money laundering and combating the financing of terrorism will be applicable within two years.
