The EU prepares to play a stronger role in setting the international standards when it comes to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regulations.
It doesn’t happen very often that a country is taken to court. But that’s exactly what is happening with Luxembourg. The European Commission (EC) has announced that it has begun legal action against Luxembourg with regards to implementation of laws to prevent money laundering.
In May 2018, as part of an attempt to combat money laundering, the EU approved new measures to enhance scrutiny of financial assets controlled by politicians and company owners. But according to the EC, Luxembourg is one of the member states that has not applied them fully.
Interestingly, the EC also recently published an action plan designed to strengthen the EU’s framework for preventing money laundering and terrorist financing. In effect, one of the actions the EC is looking to take is establish a common EU rulebook to resolve differences in interpretation of the Directives. This indicates the end of AML Directives, and the start of AML Regulations. That legislation is also very likely going to become more granular and precise, to avoid divergences in regulatory approach across the bloc.
There is one aspect of this action plan which is of particular interest. The Action Plan states that “The scope of EU legislation needs to be expanded to address the implications of technological innovation and developments in international standards.” In translation: the work will look at bringing virtual currency into scope of Anti-money laundering/Combating the Financing of Terrorism, alongside any other sectors currently not covered, for which the EC believes that they should be. The Action Plan also mentions the risks introduced with the use of digital identification and verification for purposes of establishing business remotely and cyber-related financial crime and fraud.
What does that all mean for us on the ground? Most likely more rules, more regulations, more reporting, more bureaucracy.
And who will be affected? One may be tempted to think that businesses based outside of the EU would have less to worry about, but the EC has already shattered that dream as well. Right at the bottom of the list of actions, they very firmly slotted in a sentence:
“EU to play a stronger role in setting the international standards when it comes to AML/CFT”.
In other words, the EU is preparing to flex its muscles again. For businesses, juggling the existing processes, increasing regulation and reporting, fast changing landscape of technological innovation, keeping the costs down and keeping customers happy has become a head-spinning exercise.
What the recent announcements from the European Commission tell us though, is that we are not anywhere near that light at the end of the tunnel yet. Businesses will need to ensure that during their client onboarding they collate the right data, have the right processes, the right checks and balances and the right documentation in place. But most importantly, they need solid 'one-stop-shop' software to effectively and efficiently support their compliance with regulation – not just at the initial client onboarding stage, but on an ongoing basis.
No matter how clean we believe the current state of affairs is, it looks like it will need to get even cleaner.
Nina is Compliance Product Manager at TrustQuay