Ondorse Breakfast Series: Unpacking the New E.U. AML package

Introduction

On January 18th of this year, the European Parliament and the EU Council announced they agreed on a provisional agreement on the AML package. This package, which includes provisional regulations and a proposal for a sixth directive, is a crucial step forward in bolstering the EU's efforts to tackle money laundering and terrorist financing.

Panel Composition

• Charlotte Gounot: CFO of DeFacto, former Direction Générale du Trésor, and former member of the French Ministry of Economy and Finance cabinet.
• Arnaud Schwartz: founder of Marble and former COO of Shine.
• Aymeric Boëlle: Co-founder of Ondorse and former regulatory lawyer.

Key Takeaways

• Level playing field in the EU: The new AMLA (Anti-Money Laundering Authority) headquarters will be established in Frankfurt, signaling a commitment to uniform enforcement across EU member states.

• Increased regulatory pressure: Expectations for enhanced AML and terrorist financing (TF) regulatory measures underscore the EU's proactive stance in combating financial crimes globally.

• AMLA directs surveillance of a selection of credit and financial institutions that represent a high risk in several member states and have a presence in at least six countries.
• AMLA will lead the joint supervisory teams to supervise and inspect the selected obliged entities. 
• The first selected group will include 40 financial institutions.

• Expanded Obliged Entities: Noteworthy additions include Payment Service Account Providers (PSAN), luxury dealers, professional football clubs and agents 

• High net-worth individuals (HNWIs): Heightened scrutiny of HNWIs necessitates robust identification and monitoring mechanisms, especially for private banking institutions, especially when it involves handling a large amount of assets. Failure to do so will be considered an aggravating factor in the sanctioning regime. 
• The regulation has defined no threshold. 

• Focus on high-risk countries: Compliance requirements will intensify for entities dealing with high-risk countries identified by the Financial Action Task Force (FATF).

• UBO threshold remains at 25%. The rule is harmonised between member states. 

• Cash transaction limits: All EU countries set a uniform cash payment limit of €10,000 per transaction.
• Individual-to-business transactions are capped at €1,000.
• Obliged entities will have to KYC an individual who executes a cash transaction between €3,000 and €10,000.

The 6th AML Directive

• Registers of Beneficial Ownership (UBO): The Directive emphasises the verification of Ultimate Beneficial Owners' (UBOs) information by national registers, with added screening requirements. 

• Transnational EU Cooperation: Joint Supervisory Teams (JSTs) facilitate collaborative efforts, especially for transborder FIs, to enhance regulatory compliance and oversight.

• FICOBA reporting obligations: FICOBA (declaration of opened accounts to tax authorities) reporting obligation in each EU country of operation will be standardised, whereby it was previously exclusive to France.

What’s missing? 

• UBO Verification Efficiency: Although the intention is there, we won’t see improvements soon as the authority has a year to prepare the methodology, and national registers will have four years to implement it

• EU ID. Regime: The existing EU Identification (ID) regime may lack relevance in 2024 (especially the 6th available measure in the Code Monétaire et Financier), with potential vulnerabilities to fraudulent activities such as deep fakes. 
• Furthermore, there is no alignment between LCB/FT, PSD2/3 & eIDAS 1/2 texts on ID verification. 

• Standardisation of SAR Reporting: A standardised Suspicious Activity Report (SAR) reporting framework has not been discussed yet.

• Third-Party Facilitation: There are no initiatives for facilitating third-party introductions and document exchanges between financial institutions

Thank you 

Special thanks to Charlotte Goudot, who shared her expertise and insightful thoughts on this new package and the possible impacts on fintechs!