Are you ready for what the new 5th AML Directive will change about your monitoring and reporting of transactions? An analyst stated, “Financial institutions need to be prepared for significant changes.”
The 5th EU Directive on anti-money laundering brings vital updates toward strengthening financial protection.
Relatively less known are those changes that will hit banks significantly in terms of screening transactions and flagging suspicious activity.
In this article, we analyze the major impacts of AMLD5. Understanding the adjustments regarding how monitoring workflows and reporting obligations may be done is set to empower your institution to stay compliant.
Increased scrutiny of risky transactions
The new 5th directives on money laundering oblige banks to track every possible transaction that might carry on illegal use, including money laundering or even terrorism.
The European Commission has established the fact that nearly 1 trillion euros is laundered every year in the EU area.
That’s a big number, which speaks in favor of tighter controls. Some customer categories, countries, or financial operations are considered more dangerous.
Banks are going to need better systems in place to carefully follow these types of transactions and get suspicious things flagged quickly over to compliance teams.
Knowing who your bank thinks are the risky customers can help prep for a closer look at the new EU rules.
Bonus: Prepare for the fifth AMLD with compliance solutions to efficiently update systems. Contact us to discuss options that fit your goals and budget.
Checking smaller transactions
EU AMLD requires banks to review a wider range of operations. It is done by reducing the threshold under which any financial activity on a one-off customer will be reviewed for fraud.
Under current rules, no review is conducted if a financial activity is less than €1,000. New regulations may make banks examine transactions as small as even less than €1,000 as well.
More transactions than before below the new limits set by the rules will need to be flagged and reviewed by new ways finance companies must define.
Extra checks for important customers
The 5th money laundering directive strengthened the extra checks needed for politically exposed persons. These include people holding important government jobs in other countries.
Banks may need to take more compliance steps, such as finding out where PEPs’ money came from before approving big transactions or accounts.
The Financial Action Task Force said about 70% of the money laundering cases involve PEPs, and there is a need to identify them.
Knowledge of who are PEPs under the new definition is required to meet elevated scrutiny under European anti-fraud rules.
Risk factors to consider in customer profiles
- The money trails need to be watched over by the banks in any high-risk countries as listed in the recent EU guidelines for money laundering.
- The new client verification standards must rigorously assess the business configurations that employ groups.
- Huge deals that are not equipped with recordable income undergo further checks as needed.
- Very important roles receive risk analyses based strictly on updated public role rules.
Finding suspicious activity better
One of the main goals of the Anti-money laundering directive is to spot suspicious transactions more effectively.
Banks rely heavily on their tracking technologies and have claimed that an estimated 90% of financial institutions now employ automated systems for transaction monitoring.
Detection depends on having the right systems and staff being aware of new alerts over red flags. Regulators may need to train compliance workers on the new signs of potential laundering.
Testing new filters on aged transactional data can confirm any new setups correctly identify the described activity without creating false positives.
Filing complete suspicious activity reports
Under the new 5th rules against money laundering, banks must send detailed reports about suspicious transactions to the authorities.
Adding extra details to alerts, such as full information on the transaction, customer profiles, and why transactions look suspicious, helps case reviewers.
Strong reporting systems are necessary since the European Commission claims that €1 trillion is washed in the EU annually.
The new guidelines arising from the rules on the contents of important reports can assist in the education of staff by banks.
Reportage of all important deals without over-reporting, reporting of full quality reports as requested in the 5th rules supports law enforcement.
Working together efficiently with regulators
Financial regulators will compel banks to respond faster under the new 5th EU anti-money laundering rules.
Answering supporting questions need not bring down daily business. The European Commission said the financial sector loses about €100 billion annually in money laundering.
Banks need to update primary contacts and alternative arrangements for prompt professional responses.
Technologies enabling safe, remote data sharing will minimize face-to-face meetings. Regular meetings enable the authorities to share views to fine-tune the systems.
Coordination with suspicious money flows allows regulators to obtain valuable information without interruptions.
The banks are working toward their duties in the 5th rule while trying not to neglect the needs of the customers.
Ease your transition to 5th AMLD with our monitoring software and expert support. Learn why financial firms look up to our tools on our website.
