The impact of the 5th Money Laundering Directive
Martin Cheek (pictured), managing director, SmartSearch
As criminals get cleverer, so should the laws and regulations that are there to catch them, and money laundering is no different.
Last summer, following a number of high-profile money-laundering cases, including the Panama Papers, and the terrorist attacks in Paris and Brussels, the 5th Money Laundering Directive made some important amendments in an attempt to counteract terrorist financing and increase the transparency of financial transactions.
One if the most significant of these changes was the requirement for electronic verification methods to be used by regulated businesses within their Customer Due Diligence and Know Your Customer processes.
Electronic identification is not new. Our electronic anti-money laundering (AML) platform was first launched in 2011, while its predecessor first started performing electronic checks in 2004. These types of solutions have been available to regulated businesses for many years now, either as an alternative or supplementary to traditional documents such as passports, driving licences and utility bills.
But now that the 5th Directive has stipulated that electronic verification should be used whenever possible, regtech – and specifically, electronic AML solutions – have been thrust into the spotlight.
The directive stats that “accurate identification and verification of data of natural and legal persons are essential for fighting money laundering or terrorist financing” and says that electronic identification schemes offer “high-level secure tools and provide a benchmark against which the identification methods set up at national level may be checked.”
Unless you have been living under a rock for the past two years, you will be aware that the UK is due to leave the EU on March 29 and therefore will not be subject to EU money laundering regulations. However, the UK government has already committed to implementing the directive as it has long been accepted in this country that electronic solutions offer the most efficient and reliable identification checks. In fact, the
UK leads Europe in terms of developing and implementing retch solutions. Half of the 60 companies on the RegTech 100 list are from the UK, up from 26 the year before, highlighting how much the sector is growing.
While not all European countries have electronic identification solutions, the UK has a long-standing acceptance of such methods of identification and as a result, leads Europe in terms of RegTech. In fact, of the 60 European companies on the RegTech 100 list, half were from the UK, up from 26 last year, which shows just how dominant the UK is in this sector and how much it is growing.