Firms need to take action now as new Fifth Money Laundering Directive rules aimed at tackling money-laundering came into force today (Friday 10 January). These place increased importance on the acceptable use of electronic verification methods in confirming identity, without the need for passports or utility bills.
The Fifth Anti-Money Laundering Directive – Ready or Not
Consequently all financial services firms, solicitors, accountants, estate agents and now also letting agents not currently using electronic verification, need to re-evaluate their customer due diligence processes. Electronic verification is a far more robust, cost-effective method of Know Your Customer (KYC).
The new regulations recognise the latest technological developments and clearly state that regulated businesses can use electronic verification instead of traditional methods of KYC such as passports, driving licences and utility bills. Since 2004, firms have been able to use electronic verification, but the latest regulations are explicit in that firms can use this method as their sole basis of client verification.
In an earlier (April 2019) Treasury consultation on the money laundering regulations, before they brought them into law, the Government also made it clear that it was looking to encourage the greater use of electronic verification.[1]
The EU’s Fifth Money Laundering Directive (5MLD) was transposed into UK law by regulations published just days before Christmas, leaving firms with very little time to make the necessary changes. Any firms that haven’t already prepared will therefore need to take action immediately. This includes sectors that were not previously included such as cryptocurrency platforms, art dealers, pre-paid cards and certain letting agents dealing with rents of over €10,000 per month.
Commenting on the new regulations, Martin Cheek, managing director of SmartSearch, said: “The Government – and the EU – are right to want to see more use of electronic verification. It’s been shown to be more reliable, quicker and more cost effective than manual checks. Plus, firms can have highly efficient screening and ongoing monitoring for Politically Exposed Persons and Sanctions, all of which are a requirement of the Anti-Money Laundering rules.
“It’s a pity the regulations didn’t appear until so late in the day, but it is imperative that firms take action now to show they comply with the new regulations or else they could face a significant fine. There is increased national and international focus on the scourge of money-laundering and terrorist financing and electronic verification is an easy way to help prevent this.”
[1] ‘Transposition of the Fifth Money Laundering Directive: consultation’ (HM Treasury, April 2019) pp.29–30 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/795670/20190415_Consultation_on_the_Transposition_of_5MLD__web.pdf
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