What is the background to the Directive?

1. As AML and terrorist financing typologies have evolved, the underlying regulatory landscape also needed to be adapted.
2. One of the main drivers for the Directive was the issue of updated financial crime/AML recommendations by the FATF in February 2012.
3. The European Commission then engaged Deloitte to assess the implementation and application of the Third Money Laundering Directive 2005/60/EC across the EU and on 11 April 2012 the EC adopted a report making recommendations for further development of the legislation.
4. The proposed new Directive reflects the concern that the third Directive had been implemented inconsistently across the EU and posed problems for business operating cross-border as outlined in the Deloitte report.

How will the new Directive affect organisations in the UK?

5. The impact of most of the changes on UK regulated firms is unlikely to be substantial, as the UK’s AML regime incorporates the majority of these rules already and was considered amongst the gold standard for AML regulation.
6. However, the biggest impact will be felt in relation to increasing the transparency of beneficial owners. It is likely that companies (and maybe trusts) will need to transmit up-to-date information to a central public register (note the recent UK government consultation and proposals for draft legislation on a public register of corporate beneficial ownership), accessible by regulators and regulated businesses.
7. Enhanced due diligence to be carried out on domestic PEPs is another change, as is the requirement in the Directive for a written risk assessment.

What should organisations and their lawyers be doing in preparation?

8. Organisations should be reviewing the effectiveness of their current systems and controls to ascertain whether they are working effectively. Money laundering reporting officers should review their existing risk assessments (documenting them where this has not already been done) to ensure their business/sector/product/client risks are covered.
9. There should be an expectation that systems designed to screen PEPs may have a slight increase in output. However, practically all major financial institutions already consider domestic PEPs as part of their AML programme so this change should not have as great an impact as one may imagine.
10. Firms should be considering whether there is a need for a compliance officer at management level (particularly given the Financial Conduct Authority (FCA)/Prudential Regulation Authority proposals around senior manager oversight for compliance and AML) and an internal audit function (to test internal policies), depending on the size and nature of the business.

When will it be coming into force, and when can UK lawyers expect corresponding changes to the UK’s approach to AML?

11. Once the Directive is adopted, member states have a maximum of two years to transpose the Directive into national legislation. It is anticipated that adoption will take place at some point in 2015 with the new UK regulations likely to come into force in late 2015 or early 2016.
12. This will ensure that the new provisions are in place before the FATF mutual evaluation review of the UK in spring 2016.