Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations are used across the European financial industry and are designed to protect consumers and eliminate both fraud and money laundering. If you have a business in Europe, you may be subject to these guidelines and must do your due diligence to remain compliant.
What are the Latest AML and KYC Policies in Europe?
The sixth anti-money laundering directive (6AMLD) governs the AML and KYC landscape in Europe. The directive came into effect on June 3, 2021, and updated 5AMLD, adding more clarity and assisting companies in the fight against money laundering.
At the time of writing, in 2023, 6AMLD remains in effect and we have yet to see the launch of a 7AMLD. The guidelines established by this directive include:
The guidelines set out a list of predicate offenses for money laundering, including fraud and counterfeiting. It also adds two new offenses to the list: cybercrime and environmental crime, indicating that the crime is evolving, as are the criminals participating in it.
Under previous directives, only individuals can be prosecuted for money laundering. Changes initiated by 6AMLD mean that organizations can now face punishments. It means that if an employee is caught committing money laundering offenses, the employer could be punished.
The directive added a minimum prison sentence of 4 years for anyone found guilty of money laundering offenses. The previous minimum was just 1 year.
Much of 6AMLD was geared toward creating a more harmonious and cohesive system and ensuring the same rules and penalties apply across EU member states. For instance, member states are now required to share information and cooperate in prosecutions, thus making it easier to target cross-border money launderers.
One of the most notable changes made by this directive concerns the definition of a money laundering offense. It is now a crime to aid and abet, and as these definitions are expansive, they could incorporate a large number of individuals involved with the money laundering process.
The regulations created by the Payments Services Directive (PSD2) and General Data Protection Regulation (GDPR) also remain in place and they continue to play a significant role in protecting consumers.
PSD2 requires all customers to use two-factor authentication when signing up for secure accounts, thus reducing the risk of unauthorized access. GDPR governs the storage and organization of user data and prevents companies from trading, selling, and misusing it.
Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) are important as well. The former requires companies to check blacklists and grey lists to ensure they are not dealing with sanctioned individuals and criminals. The latter is used for high-risk customers and helps to confirm their identity and legitimacy.
Still Waiting for the AMLA
In a previous guide to KYC and AML guidelines, we spoke about a new Anti-Money Laundering Authority (AMLA). The organization is not yet active, but it remains one of the EU’s biggest priorities and could change the way that KYC/AML laws are established and governed in the future.
Numerous EU cities have bid to host the AMLA, including Frankfurt in Germany. The EU initially set an implementation date of 2024, and while that remains subject to change (it could now be 2025 or 2026), 2023 will likely be a big year for the creation of this new authority.
What is the Purpose of These Policies?
The purpose of KYC is to identify an individual/business while AML is used to guard against money laundering.
Money laundering is a massive issue. Trillions of dollars are laundered globally every year, and this money is used to fund trafficking, terrorism, and other illegal activities. The more stringent AML checks are, the less freedom money launderers will have and the harder it will be for them to fund illegal activities.
AML guidelines are especially important in the EU. Member states have effectively abolished all of their borders, allowing criminals to travel freely. By initializing strict controls, EU governments can restrict the flow of illegal money through these nations.
As for KYC, it serves several purposes.
It can confirm that a consumer is old enough to use a service or actually lives where they claim to live. For financial companies dealing with sensitive transactions and large sums of money, this is very important. KYC checks are also used in the online gambling sector to prevent underage gambling and reduce the damage caused by problem gambling.
Why Must Operators Abide By These Regulations?
AML/KYC regulations are designed to protect consumers and take power, control, and money away from criminal enterprises. They can be frustrating for companies, and consumers also get frustrated over repeat requests for driving licenses, passports, and other supporting documents, but these guidelines ultimately benefit everyone.
Furthermore, failure to comply with AML/KYC guidelines could lead to hefty fines and other penalties. Take GDPR as an example—breaches of these guidelines can lead to fines of up to €20 million or 4% of global turnover. AML breaches are even more serious, as authorities have the right to impose fines of up to 10% of a company’s turnover.
Regardless of your industry, operations, or size, these fines can have a crippling effect on your profitability and continued operation, so it’s important to remain compliant.
How to Stay on Top of AML/KYC Guidelines in Europe
KYC and AML regulations are extensive and guidelines vary by industry. If you operate a company within the European Union, there’s a good chance that these guidelines will apply to you. To help you navigate them and ensure your company remains compliant, turn to A Data Pro.
We offer a range of services to help with AML and KYC compliance, including due diligence reports and checking of sanctions lists. Every year, dozens of companies are hit with substantial fines because they fail to comply with AML and KYC guidelines, and that doesn’t include the countless others who face operational issues because they don’t check the legitimacy of major clients.
Make sure you’re not one of these companies—check out A Data Pro today.