The Fourth Anti-Money Laundering Directive (4MLD)

The Fourth Anti-Money Laundering Directive (4MLD)

September 21, 2017

Background

The Fourth Anti-Money Laundering Directive (4MLD) is an enhancement of the third money laundering directive, incorporating 40 recommendations made by the Financial Action Task Force (FAFT), following its review in February 2012. The scope of the directive builds on the existing Anti Money Laundering (AML) and Counter Financing of Terrorism (CTF) framework and introduces changes, notably around beneficial ownership identification and the definition of a Politically Exposed Person (PEP).

The 4MLD implementation date was 26 June 2017 from which all firms are expected to be compliant.

Overview

The 4MLD primarily applies to the financial sector, which includes credit and financial institutions as well as natural or legal persons acting in the exercise of their professional activities (Article 2 of the Directive). It also applies to all dealers in goods making or receiving cash payments in excess of €10,000, regardless of whether payment is made in one or more linked transactions. These are referred to as obliged or regulated entities.

The 4MLD extends the scope of the AML framework. It introduces increased obligations on firms and widens its application. Key changes include:

  • A shift to a risk-based approach - removal of the automatic entitlement to apply ‘simplified due diligence’ (SDD) for specific customers. Instead firms need to carry out risk assessments and provide robust rationale and justification for applying SDD
  • An increased reporting burden faced by individual firms in relation to ‘Beneficial Owners’
  • The definition of a ‘Politically Exposed Person’ (PEP) has been changed to formally encompass persons entrusted with a prominent public position domestically, as well as domestic PEPs who work for international organisations
  • Reducing the threshold for cash transactions above which persons trading in goods qualify as ‘obliged entitles’ from €15,000 to €10,000

Core Objectives

  • To implement a risk-based legal framework that counters new threats
  • To achieve consistency in approach to AML and CTF across the European Union (EU)
  • Reduce regulatory cross-border complexities
  • To promote financial stability within the EU internal market by protecting the proper functioning and integrity of its financial systems and economic prosperity