AML4 TRANSACTION MONITORING

/AML4 TRANSACTION MONITORING
AML4 TRANSACTION MONITORING 2018-02-05T09:32:59+00:00

INTRO

The European Union’s Fourth Anti-Money Laundering Directive came into force on 26th June 2017. The Directive, aimed at upgrading existing regulations to combat money laundering and counter terrorist funding (CTF), includes some fundamental changes to the anti-money laundering procedures including the Customer Due Diligence (CDD) central register for beneficial owners, and a greater focus on risk assessments. 

KEY POINTS

  • Enacted on 25 June 2015
  • Full implementation required locally by 26 June 2017
  • Eventually transposed into Maltese law in December 2017 and enacted on 1 January 2018 
  • Replaces the EU Third Anti-Money Laundering Directive
  • Emphasis on ultimate beneficial ownership and enhanced CDD
  • Widened definition of a politically exposed person (PEP)
  • Cash payment threshold lowered to €10,000
  • Expanded to included entire gambling sector beyond just casinos
  • Enhanced risk-based approach, requiring evidence-based measures

OVERVIEW

The stated aim of the new directive is to remove any ambiguities in the previous directive and consolidate AML and counter-terrorist rules across all EU Member States. Furthermore, the directive takes into consideration recommendations made by the Financial Action Task Force (FATF) in 2012 which highlighted a range of improvement measures to make AML activities more effective at a national and international level.

FOCUS ON MALTA

AML4 Transaction Monitoring was transposed into Maltese legislation in December 2017 by way of five separate legal notices. The new regulations, which provide for a Register of Beneficial Owners amongst several other rules, came into force locally on 1 January 2018.

The new regulation, reflected in the Civil Code, the Companies Act, the Trusts and Trustees Act and the Prevention of Money Laundering Act (PMLA), resulted in 100 pages of new legislation for Malta and Malta-based companies to include among others:

  • Wider Rule Application
  • Greater Transparency on the beneficial ownership of corporate entities
  • Enhanced record-keeping requirements
  • A focus on risk-based measures and the risk-based approach
  • Expanded definition of Politically Exposed Persons 

We assess the above in further detail below:

WIDER RULE APPLICATION 

In addition to land-based casinos – which were already considered obliged entities in the previous directive – remote gaming operations will also be brought into scope under the new EU 4AML, addressing what is considered a key vulnerability in the AML landscape. The regulation also denotes traders in high-value goods who make or receive any cash payment in excess of €10,000 (the threshold was €15,000 in the 2007 Regulations), whether in one transaction or several linked transactions, as entities that must also comply.

GREATER TRANSPARENCY

Like all other EU member states, Malta will have to establish and maintain a central register containing information about the beneficial owners of companies and other legal persons, so as to assist obliged entities when conducting customer due diligence. In the past, complex corporate structures and financial vehicles like trusts, albeit legitimate, have been accused of hiding illegal activities because of their lack of transparency. Under the new directive, the anonymity associated with the protection of trustees, is completely unacceptable.

ENHANCED RECORD KEEPING REQUIREMENTS

The Financial Action Task Force (FATF) and the 4th AML Directive define the beneficial owner as ‘the natural person/s who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.”

APPLYING THE RISK-BASED APPROACH

The word risk appears 149 times in the Fourth Directive, compared with just 36 in the Third Directive. This is not accidental. The Directive puts a heavy emphasis on employing a risk-based approach to money laundering at every level. It directs states to commission national risk assessments, firms to develop risk-based policies, and practitioners to conduct CDD in a risk-based manner.

POLITICALLY EXPOSED PERSONS (PEPs)

The definition of PEPs has been widened to include domestic individuals occupying prominent public positions, in addition to foreign PEPs. Enhanced Due Diligence (EDD) will continue to apply when onboarding a customer in a position of political influence and robust monitoring needs to be exercised throughout the entire course of the business relationship. The Fourth Directive ups the pressure on enhanced checking of PEPs by extending the defined period after which a PEP qualifying-post is vacated, to a minimum of 18 months during which time, this person is still considered a PEP.

HOW CAN BRSANALYTICS HELP?

THE 4TH AML DIRECTIVE CAN BE SEEN AS HAVING 3 MAIN PILLARS

  • 3RD PARTY AUDIT

  • KYC (KNOW YOUR CUSTOMER)

  • ONGOING MONITORING

BRSANALYTICS is focused on helping with the third pillar.  When looking at ongoing monitoring, the cost associated with running these checks on a daily basis involves significant man hours sifting through reports and cross-referencing values across companies and individuals. As the bank or financial institution grows, the amount of work grows with it resulting in the need for increased human resources in order to meet the rigorous regulations.

Replacing manual checks by investing in a proven and robust IT system therefore is of paramount importance.

In line with the existing processes of your compliance team, our solution aims to cater for the ongoing monitoring of transactions and profiling of customers’ behaviour through the activity recorded in these transactions, allowing banks and financial institutions to:

  • Identify when more information is needed from a KYC perspective;
  • Capture fraudulent behaviour;
  • Identify the occasional transaction that does not fit in with the subjects profile;
  • Optimise monitoring thresholds;
  • Instantly notify the compliance team of suspicious activity.

Manual monitoring is time-consuming, inefficient and overly-costly and may lead to non-compliance. Having a strong IT system in place enables banks to significantly reduce costs in operational areas and enhance their monitoring and reporting processes against the prevention of money laundering and terrorist financing.  

The BRS AML4 module aims to prevent potential reputational damage of credit institutions and avoid the risk of incurring hefty financial penalties of AML4 non-compliance.

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Would you like to receive more information on the technical specifications of the product or a more detailed explanation on how the solution works to help improve the business processes of your regulatory division?

Contact one of our representatives for an appointment and we will be more than happy to answer any questions you may have. 

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