Top 5 Crucial Anti-Money Laundering Regulations Essential for 2020
In 2019, the global business landscape saw a significant shift in Anti-Money Laundering (AML) regulations as various jurisdictions, including the European Union (EU), Hong Kong, and Singapore, reinforced their AML frameworks to combat money laundering and terrorist financing.
The Financial Action Task Force (FATF), a global organization comprising 36 member jurisdictions and 2 regional organizations, set international AML standards. The revised 40 recommendations, focusing on preventing the abuse of the financial system for money laundering and terrorist financing, promote cross-border cooperation, expect risk-based approaches, and apply enhanced due diligence (EDD) especially on high-risk jurisdictions.
In the EU, the Fourth Anti-Money Laundering Directive (AMLD 4) came into full effect in 2019, enhancing customer due diligence, establishing transparency of beneficial ownership for companies, and improving cooperation among EU member states' financial intelligence units (FIUs). The EU's Fifth Anti-Money Laundering Directive (AMLD 5), adopted in 2018, will be implemented in early 2020. AMLD 5 builds on AMLD 4 by extending due diligence requirements to virtual currencies/exchanges, prepaid cards, and addressing high-risk third countries more stringently.
The Hong Kong Monetary Authority (HKMA) updated its AML guidelines to align with FATF standards, focusing on tightening controls on customer due diligence, monitoring of high-risk clients, and ensuring effective risk-based frameworks for financial institutions in Hong Kong. Similarly, the Monetary Authority of Singapore (MAS) continued to enhance its AML regimes, emphasizing efficacy in oversight, risk assessments, and compliance frameworks across sectors including banking, financial advisories, and digital payment token services.
The Bank Secrecy Act (BSA), the AML compliance law in the United States, also saw regulatory updates in 2019. The BSA requires US financial institutions to assist government agencies in detecting and preventing money laundering, mandating recordkeeping and reporting suspicious activities.
In light of these regulatory changes, businesses worldwide are under pressure to reevaluate and upgrade their AML compliance systems. The focus is on enhanced due diligence, transparency of beneficial ownership, and extending oversight to new financial products like cryptocurrencies.
It is important to note that from 2015 through 2019, global AML enforcement intensified, with regulators imposing multi-billion dollar fines globally due to weaknesses in control and monitoring systems. This has pushed entities to improve AML compliance significantly.
The FATF's 2017 supplement on customer due diligence allows the use of simplified customer due diligence measures such as electronic identity verification. Domestic politically-exposed persons (PEPs) in the EU will now be subject to the same scrutiny as foreign PEPs. The FATF sets standards for AML compliance laws globally and promotes effective implementation of anti-money laundering compliance.
Moreover, the threshold for identifying holders of prepaid cards in the EU will be reduced from €250 to €150. E-Money online transactions with prepaid cards will be limited to a maximum of €50. The MAS Act in Singapore imposes fines not exceeding $1 million on financial institutions that fail or refuse to comply with the requirements of its applicable AML/CFT Notice.
In conclusion, 2019 marked a year of consolidating international AML standards and extending regulatory scope, requiring businesses worldwide to be vigilant and proactive in their AML compliance efforts. This includes regular monitoring of accounts, reporting of suspicious activities, and maintaining thorough records of high-risk clients for a minimum of 5 years. Failure to comply with these regulations may result in significant fines set by local laws.
Technology plays a crucial role in facilitating enhanced due diligence and transparency in the business world, as seen in the use of electronic identity verification for customer due diligence.
The implementation of AMLD 5 in early 2020 will extend due diligence requirements to virtual currencies and digital payment token services, highlighting the intersection of business, technology, and finance in the battle against money laundering and terrorist financing.