The EU’s Fifth Anti-Money Laundering Directive (5AMLD) is on the way, with the deadline of January 10, 2020 fast approaching. The regulation lays out substantially upgraded requirements for the data that companies must hold – including “adequate, accurate and current information” on beneficial ownership – and there are fears that the industry is not yet ready. But on top of that, wildly divergent progress has been made by different EU member states, raising further concerns about how firms will be expected to report against different national registers.
The EU has indicated that it will take a firm stance on compliance for the upcoming regulation – including “effective, proportionate and dissuasive measures or sanctions” for those failing to comply with ultimate beneficial ownership (UBO) requirements.
Part of these requirements includes the creation of a national UBO register for each EU member state, which must be up and running by January 10, 2020 for corporate and other legal entities and by March 10, 2020 for trusts. Centralised automated mechanisms for the identification of holders of bank and payment accounts and safe-deposit boxes are required by 10 September 10, 2020 and a central register must be interconnected via the European Central Platform by March 20, 2021. And these registers do not just apply to majority shareholders – any owner with a stake of 25% or more must be registered.
In other words, there is less than two months to go until firms are required to report a vast amount of new information through a public channel – and the progress remains worryingly opaque. Some countries have made strong progress – the UK is one of the most advanced, while France, Germany, Luxembourg, and Ireland have also put their registers into operation already. It shouldn’t be too difficult – the creation of the register itself was actually a requirement of the Fourth Anti-Money Laundering Directive, and the only change in 5AML was to make them publicly available – but there are still some teething problems in terms of EU-wide application.
“We are seeing a discrepancy in the data that is required to be held by registers as they transpose into national law,” explains Rachel Woolley, Global AML Manager at client onboarding specialist Fenergo. “There are a number of different data points required by each Member State. Some want identification numbers, some don’t, for example. It’s an added difficulty, particularly when onboarding across borders.”
With a proposal for a centralised EU authority to be established to impose a uniform supervisory approach, the fear is that with existing discrepancies in the regulatory environment, this might make compliance almost impossible. “It’s difficult to see how it would work,” agrees Woolley.
Another concern is that the data points required for the register are not exactly the same as those named in the AML legislation itself – creating further confusion. “There is information that is needed in order to comply with AML legislation, but then the public register also asks for information that we are not mandated to collect. In the absence of any guidance from the authorities in terms of how to comply with discrepancy reporting obligations, it is difficult to understand the extent of the reporting requirement,” warns Woolley. “There are still a lot of question marks, and that is a worry when we are so close to transposition time.”
The issue of time is a pressing one, because there is a further possibility that banks may need to invest in new technology – or at the very least, new data sources – just to meet the reporting requirements. This is because of concerns around a circular reliance on data. The registers will hold and make publicly available the UBO information on an entity. But under 5AMLD, that information has to be compared and confirmed with an independent source. Many of these ‘independent sources’ are in fact data aggregators and third parties – who may take their data from the public register itself, thus invalidating the comparison. “And what level of verification are the national registers implementing themselves? Where are they getting the information to validate their own data?” asks Woolley.
Fenergo is currently working on a comparison tool to enable clients to see information from their data providers and compare it side by side with the national register, but concerns remain around the lack of guidance from the regulators. And the lack of clarity is already having an impact on business. Research from the firm released last month shows that customer onboarding times have increased over the past five years, with regulatory requirements around UBO one of the key issues hindering the process.
A 2019 analysis from the Financial Action Task Force (FATF) also showed that member countries demonstrated their lowest performance – at only 23% – when dealing with UBO information, noting that “information on ownership structures is [still] largely unavailable to competent authorities.”
“The EU has already expressed concerns around deadlines not being met – and countries under AML4 have been referred to the EU court for not complying,” warns Woolley.
“Achieving the data quality required and being able to report that efficiently is crucial –firms can achieve this with the support of a rules-driven technology ecosystem integrated with third party entity data and AML screening providers. It’s an ongoing process, but one that should be at the forefront of everyone’s mind.”