The European Union’s Anti-Money Laundering Directives (AMLDs) have played a pivotal role in shaping the bloc’s approach to combating money laundering and terrorist financing. Over the years, these directives have undergone significant revisions to adapt to evolving threats and best practices. One of the most notable developments has been the increasing emphasis on a risk-based approach.

AMLD4: Laying the Groundwork

AMLD4 marked a significant departure from previous rule-based approaches. It introduced the concept of a holistic, risk-based approach, recognizing that money laundering and terrorist financing risks vary across different sectors, jurisdictions, and types of transactions. This approach encouraged Member States and obliged entities to tailor their AML/CFT measures based on their specific risk profiles.

Key features of AMLD4 included:

• National Risk Assessments: Member States were required to conduct comprehensive risk assessments to identify and understand their specific AML/CFT vulnerabilities.
• Information Sharing: AMLD4 emphasized the importance of sharing risk assessment results among Member States, the Commission, and relevant supervisory authorities to foster a common understanding of risks and facilitate cooperation.
• Simplified and Enhanced Due Diligence: The directive introduced the concepts of simplified and enhanced customer due diligence (CDD) measures, allowing for flexibility based on the assessed risk of a customer or transaction.

AMLD7: A More Proactive and Unified Approach

AMLD7 represents a substantial refinement of the risk-based approach established in AMLD4. It aims to create a more unified, proactive, and centralized AML/CFT framework within the EU.

Some of the key enhancements introduced in AMLD7 include:

• Strengthened Risk Assessment: Member States are now required to conduct even more comprehensive risk assessments, taking into account not only money laundering and terrorist financing risks but also risks associated with non-implementation and evasion of targeted financial sanctions.
• Increased Transparency and Accountability: AMLD7 promotes greater transparency by requiring Member States to publish summaries of their national risk assessments and report on the effectiveness of their AML/CFT regimes.
• Proactive Supervision: Supervisors are empowered to adopt a more proactive supervisory approach, conducting regular risk assessments of obliged entities and sharing information with Financial Intelligence Units (FIUs).
• Harmonization and Centralization: AMLD7 introduces the Anti-Money Laundering Authority (AMLA), a central supervisory body aimed at harmonizing AML/CFT practices across the EU.

Changes in Requirements and Expectations

The evolution from AMLD4 to AMLD7 has resulted in significant changes in requirements and expectations for both Member States and obliged entities.

Member States are now expected to:

• Conduct more comprehensive and up-to-date risk assessments.
• Demonstrate greater transparency and accountability in their AML/CFT regimes.
• Enhance coordination and cooperation with other Member States and the EU.

Obliged entities are required to:

• Proactively identify, assess, and mitigate risks.
• Implement more robust AML/CFT measures, including enhanced customer due diligence and record-keeping.
• Comply with stricter supervisory requirements and reporting obligations.

Conclusion

AMLD7 represents a significant step forward in the EU’s fight against financial crime. By refining the risk-based approach, introducing measures to enhance harmonization, proactive supervision, and effective information sharing, the directive aims to create a more robust and effective AML/CFT framework. As the threat landscape continues to evolve, it is essential for the EU to remain vigilant and adapt its AML/CFT measures accordingly.

Unfortunately, as practice shows, many companies face the problem of effective implementation of AML tools, and compliance departments are often criticized for imposing too much obligations on operational departments.
In addition, end customers who are presented with various statements and questionnaires report their concerns and ask about the purpose of these activities.
It is probably very difficult to explain to each client separately what AML and CFT procedures are and why it is subject to screening.

The ideal AML mechanism should be completely transparent to the end customer so that he does not even know that he is participating in the onboarding process.

Companies such as Machine Mind Limited are working on client risk assessment systems based on behavioral parameters collected in an internet browser environment, in which a registration form or application for a loan, leasing or factoring is filled out.
Modern mechanisms use machine learning to make decisions and suggest a calculated level of customer risk.

With the development of services whose sales process is carried out remotely, the need to ensure the automation of risk assessment processes and AML CFT increases.

Due to the fact that more and more cases are handled via the media such as the Internet or telephone, the officer responsible for risk assessment has no physical contact with the client.
Therefore, compliance departments must adapt to the changing reality.

Recent events related to the coronavirus pandemic have only accelerated the digitization process.

Screening automation tools – must have of 2020

The number of insurance policies as well as loans granted via the Internet increases significantly.
Online currency exchange offices are replacing stationary exchange offices, and more and more factoring companies are preparing IT systems designed for remote customer service.

In order not to lose effectiveness or block the development of services sold remotely, compliance departments must prepare for a new reality.
Risk assessment questionnaires or behavioral behavior analysis can be implemented by specialized IT systems.
By using services from external suppliers – such as software for searching sanction lists and for verification on Pep lists, we can significantly speed up and increase the efficiency of the risk assessment department.
Automated screening of sanctions or political status can be outsourced without generating high costs. Easy integration with the company’s external systems means that they can be implemented and implemented in just a few weeks.

Verification of a single customer on sanction lists and checking his PEP status takes less than half a second, so the answer can be returned to the customer’s IT system virtually immediately.
The recently implemented UBO Registry in UK Companies House , which provides an API interface, allows such automatic screening tools to download information about the real beneficiary based only on the company’s VAT number or company registration number.

All these facilities and the digitization of an increasing number of processes and sharing databases using APIs is an effective fuel for the further development of AML process automation.

We will continue to follow the development of tools available in this industry and present technical and organizational news here.

The new product licensing variant allows for unlimited access to the PEP List service – available on the HyperFlow platform

The option may be particularly interesting for entities with a large volume of customers in their database.

One & simple monthly fee guarantees unlimited quantitative access to the PEP verification service. More details on the supplier’s website:

https://hyperflow.eu/en/_AML_PEP1