The 4th Money Laundering Directive (“MLD 4”) came into force in the EU on 26 June 2017. On that date, the UK implemented the Money Laundering Regulations 2017 to transpose MLD 4 into UK law.
MLD 4 brought in changes to strengthen the anti-money laundering (“AML”) regime throughout Europe, including amendments to the definition of ‘beneficial owner’ and requiring Member States to establish central registers of beneficial ownership for corporate and legal entities. This was an important driver behind the ‘Persons with Significant Control’ regime in the UK.
Despite the implementation date of 26 June 2017, a significant number of Member States have not yet implemented MLD 4 (including Ireland, Luxembourg, Bulgaria, Greece, Cyprus, the Netherlands, Poland and Romania). The delay in implementation has been due to late stage amendments to MLD 4 at EU level, and concerns over the publically available central registers.
In terms of Ireland specifically, it was expected that MLD 4 would be transposed into national law by Q1 2018, however this has not yet materialised. I Implementation of the beneficial ownership regime in Ireland will still likely be delayed further.
There was some political pressure to make additional changes to the anti-money laundering regime in Europe, due to the increase in terrorist financing, the introduction of cryptocurrencies and the rise in new technologies. The 5th Money Laundering Directive (“MLD 5”) has therefore been introduced to deal with such issues, and we expect the text of the Directive to be published mid-2018. MLD 5 is likely to be implemented during the course of 2019.
With Brexit on the horizon, it remains to be seen how the UK will choose to comply with MLD 5; although, given the UK’s commitment to anti-money laundering and counter terrorist financing, it is likely that we will implement terms at least similar to MLD 5 (and perhaps even before the implementation date).
The most significant matters which are likely to be addressed by MLD 5 are:
- Extending the regime to cover providers engaged in exchange services between virtual currencies
- Limiting the scope of the definition of ‘electronic money’ to exclude instruments and transactions that are exempt under the Payment Services Directive II
- Requiring that, where a customer is subject to registration of beneficial ownership information, the firm responsible for AML compliance must collect proof of registration or an excerpt from the register
- Widening the obligation to apply enhanced due diligence to include new specific information requirements in relation to business relationships or transactions involving high risk third countries
- Permitting Member States to require firms to ensure the first payment they receive from clients comes from an account with an institution subject to EU AML requirements or equivalent
- Requiring Member States to issue and keep up to date a list of exact functions they consider to be prominent public functions
- Permitting public access to the beneficial ownership register, which can be for limited information and subject to a registration requirement or a reasonable fee (this is already the case in the UK)
- Expanding the beneficial ownership regime to a wider range of trusts and trust-like arrangements (the regime currently only includes express trusts)
Firms do not currently have to take any steps, aside from ensuring their processes and procedures are fully compliant with the requirements of MLD 4. Firms are advised to keep a watching brief on the content of MLD 5 to assist them in their preparations for the enhanced regime in 2019.
On March 28, 2018