In a significant stride toward combating money laundering and terrorist financing, the European Union has reached a pivotal agreement on the Anti-Money Laundering (AML) Regulation and Directive. This agreement marks a culmination of efforts initiated in 2021 by the European Commission to fortify the EU’s AML framework and address evolving challenges posed by illicit financial activities within the Union.
The AML package, encompassing regulations and directives, was introduced to modernize existing AML frameworks and counter emerging money laundering practices. Notable components include the creation of a new EU anti-money laundering authority and regulations focusing on beneficial ownership transparency and cash payment limits.
On 18 January 2024, the European Council and Parliament reached a provisional agreement, mentioned above, on a comprehensive package of reforms targeting anti-money laundering (AML) and countering the financing of terrorism (CFT) legislation. These reforms aim to harmonize and strengthen AML/CFT rules across the European Union (EU). Let us delve into the key aspects of the agreement.
Expansion of Obliged Entities
The scope of entities required to comply with AML regulations will now include:
- Most of the crypto sector, according to the agreement, Crypto-asset service providers (CASPs) will need to apply customer due diligence measures when carrying out transactions amounting to €1000 or more. It adds measures to mitigate risks in relation to transactions with self-hosted wallets.
- Traders of luxury goods (e.g., luxury cars, airplanes, yachts, jewellers, goldsmiths, traders in precious metals and stones)
- Professional football clubs and agents (with certain exclusions based on risk)
Enhanced Due Diligence (EDD) Measures:
- Specific EDD measures for cross-border correspondent relationships for crypto-asset service providers
- EDD measures for business relationships with high-net-worth individuals (net worth exceeding EUR 50 million)
Cash Payment Limit
- Implementation of an EU-wide maximum limit of EUR 10,000 for cash payments, with additional requirements for identification and verification for transactions between EUR 3,000 and 10,000. According to the provisional agreement, obliged entities will need to identify and verify the identity of a person who carries out an occasional transaction in cash between €3 000 and €10 000.
Harmonization of Beneficial Ownership Rules
- Clarification of the 25% ownership threshold in multi-layered ownership and control structures
- Registration of beneficial ownership of all foreign entities owning real estate, with retroactivity until 1 January 2014
Access to Beneficial Ownership Registers
- Amendments to clarify access rights to beneficial ownership registers in response to a Court of Justice of the European Union (CJEU) judgment.
Powers Granted to Financial Intelligence Units (FIUs)
- FIUs will have immediate and direct access to financial, administrative, and law enforcement information to enhance detection of suspicious transactions.
Introduction of Supervisory Colleges
- New supervisory colleges for non-financial sector supervision, with regulatory technical standards developed by the EU’s Anti-Money Laundering Authority (AMLA).
Implications
These changes will significantly impact previously unregulated entities, imposing substantial compliance burdens. Further details are expected to be outlined in the forthcoming text of the regulation. Notably, questions remain regarding the practical implementation and governance surrounding access to financial information by FIUs.
Impact on Non-Financial Sector
The agreement extends its impact beyond financial institutions, compelling non-financial businesses to adhere to stricter AML regulations. Such businesses must ensure compliance with updated beneficial ownership rules, monitor transactions with heightened scrutiny, and prepare for increased scrutiny by authorities.
Future Course of Actions
The agreement will lead to updated texts of the AML Regulation and AML Directive, followed by approval from the European Committee of Permanent Representatives and the European Parliament. Expected to take effect in 2027, both obliged entities and non-financial businesses should prepare for compliance in advance.
For further guidance, feel free to reach out to Eurofast experts at sofia@eurofast.eu.
Pantelis Papadopoulos
Regional Director Baltics, Manager – Outsourcing Services
Eurofast Sofia
sofia@eurofast.eu