Global Trustee and Fiduciary Services News and Views

Global Trustee and Fiduciary Services News and Views

| Issue 47 | 2017

4AMLD is the latest significant upgrade to the

EU legislative programme in this area which

commenced in 1991 and has the aim of further

strengthening the EU’s defences against money

laundering and terrorist financing and ensuring

the soundness, integrity and stability, and

confidence in the financial system as a whole.

4AMLD implements recommendations by the

Financial Action Task Force (FATF). On some

issues, 4AMLD expands on FATF’s requirements

and provides for additional safeguards. Like

previous AML/CTF directives, 4AMLD is a

minimum harmonising directive, providing

Member States with the scope to adopt more

stringent provisions if they so wish.

Key amendments for the asset management

and investment funds industry

The principal amendments of 4AMLD/5AMLD,

highlighted in the opposite section, reflect the

most significant overall changes to be ushered

in. Some will be more critical to the day-to-

day landscape of those involved in the asset

management and investment funds industries

and these are examined in more detail below.

Risk-based approach and customer due diligence

Central to 4AMLD is greater emphasis on a risk-

based approach to addressing money-laundering

and terrorist-financing risks. Not only must

Member States carry out risk assessments, but

designated bodies (under 4AMLD these are

called “obliged entities”) will also be required

to do so. The amplified emphasis in 4AMLD on

risk assessment will also be reflected in changes

to the current rules on customer due diligence

(CDD). At present, certain automatic exemptions

are available from the requirement to carry out

simplified customer due diligence (SCDD) if the

customer/investor is regarded as “blue-chip”, e.g.

a credit institution in the EU or third country with

equivalent AML measures, or is a listed company.

These important automatic exemptions will no

longer be available under 4AMLD. Instead a

decision to apply SCDD will require to be based

on the obliged person’s assessment that the

relationship or transaction represents a lower

degree of risk. Minimum lower-risk situations are

set out in Annex II of 4AMLD.

Under 4AMLD enhanced customer due diligence

(ECDD) will require to be carried out when

dealing with natural persons or legal entities

established in third countries identified by

the European Commission as high-risk third

countries and other cases of higher risk

identified by Member States or designated

Greater emphasis on the risk based approach

. Risk

based assessments will be required to be carried out at

European, Member State and individual institution level and

be kept up to date. The European Supervisory Authorities

(ESAs)

are required to issue joint opinions on Anti-Money

Laundering/Combatting the Financing of Terrorism (AML/

CFT) risks and the first joint opinions were required to

be produced by 26 December 2016. Subsequent opinions

should be issued every two years thereafter.

Extension of scope

. Tax crimes are now included in the

definition of “criminal activity” falling within the ambit of

4AMLD. Providers of gambling services are also brought

within scope as are persons trading in goods for cash

payments of at least EUR10,000. The extent to which

Member States may decide that legal and natural persons

engaging in a financial activity on an occasional or very

limited basis, and do not fall within the ambit of the directive,

will be curtailed. 5AMLD also brings virtual currency

platforms and custodial wallet providers (i.e. persons who

control access to virtual currencies) within scope.

Enhancement of beneficial ownership information

Corporate and other legal entities incorporated within their

territory will be required to obtain and hold accurate and

current information on their beneficial ownership. 4AMLD

also imposes obligations on trustees of express trusts

to obtain and hold information on beneficial ownership

(please see commentary later in this article in relation to

these points specifically).

Customer due diligence and politically exposed persons

4AMLD substantially tightens rules on customer due

diligence including in the areas of carrying out simplified

due diligence, enhanced due diligence, the ability to rely on

third parties to carry out due diligence and the extension

of the rules relating to politically exposed persons to also

cover domestic politically exposed persons.

Administrative sanctions

. 4AMLD strengthens the

sanctioning powers of Member States by introducing a

set of minimum principle-based rules that Member States

should ensure are available for systematic breaches of

AMLD requirements. It also extends the powers of the

financial intelligence units (FIUs) in the Member States.

4AMLD introduces greater administrative sanctions for

breaches, including a maximum fine of at least twice the

amount of the benefit derived from the breach or at least

EUR1 million. For breaches involving credit or financial

institutions, it provides for a maximum fine of at least:

• EUR5 million or 10% of the total annual turnover

in the case of the institution.

• EUR5 million in the case of a natural person.

Principal amendments of 4AMLD/5AMLD