CCR2 Technology
Time to adapt
As the Fifth EU Money Laundering Directive comes into force, electronic verification is key to successful AML compliance
John Dobson Chief executive, SmartSearch
john.dobson @
smartsearch.com
The Fifth EU Money Laundering Directive (5MLD) takes effect across all member states this month, posing a significant compliance challenge to businesses affected by the regulations. If they are relying on manual systems,
they need time to adapt their processes to each successive change in the rules, and with the final UK legislation appearing so late in the day, this is no simple matter.
Big step One of the big steps forward in the directive is that, for the very first time, it recognises electronic verification (EV) as a secure method of establishing customer ID, and stipulates that it is to be used wherever available. This represents real progress, as it has
been established beyond reasonable doubt that EV is much more effective than manual ID checks. It has never been easier for would-be
money-launderers to get hold of forged or altered documents that are capable of taking in all but the most seasoned professionals. By contrast, there has never been a case
of mortgage fraud, for example, where EV has been deployed. There are major advantages to firms from
using an electronic platform for their anti- money-laundering (AML) compliance. As well as being much quicker than manual processes, it is also much more cost-effective.
PEPs In addition to ID verification, an electronic platform can conduct full Sanctions and
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that the UK will leave the EU, with another deadline looming at the end of the year as the government seeks to negotiate a mutually acceptable trade deal before the transition period expires. Regardless of the outcome of these
negotiations, the UK remains committed to working with other governments on AML – and it may choose to go further than the existing rules. Legitimate investment depends, in part,
Politically Exposed Persons (PEP) screening and provide ongoing monitoring, alerting users to any change in status. The system can also be updated to reflect changes to regulation, so that firms can be sure they are always compliant. Furthermore, it is clear that regulators do
not intend to stand still. There is already talk of further European legislation, and more recently there have been moves to set up a new pan-European body to oversee AML efforts. Governments at both European Union
(EU) and domestic levels have so far held back from making EV mandatory – as we and others have argued – but as EV becomes increasingly widely used and its benefits more obvious, this would be a logical next step.
Brexit Following the decisive result of the general election in December, it now seems certain
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on the knowledge that markets are ‘clean’ so tightening up AML procedures and cracking down on financial crime more generally would be a good way to send a signal to the world that Britain was open for business in a coming post- Brexit world. EV is already increasingly widely used,
and it seems only a matter of time before regulators adopt it as standard. For regulated firms, it may well pay –
both in the long run and more immediately – to be ahead of the game. CCR2
One of the big steps forward in the directive is that, for the very first time, it recognises electronic verification (EV) as a secure method of establishing customer ID, and stipulates that it is to be used wherever available
January 2020
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