What You Need To Know - The Fourth Money Laundering Directive
The Fourth Money Laundering Directive (4MLD), aims to bring a more robust risk-based approach to tackling money laundering and counter terrorist financing.
4MLD was first introduced in 2015 in the wake of terrorist attacks across the EU and the leaking of the 'Panama Papers'. Under this new Directive, firms will be faced with additional responsibilities, starting with the need to reinforce any existing risk-based approaches across all aspects of their Anti Money Laundering (AML) and Counter Terrorist Financing (CTF) compliance programmes.
In the past, dealings between banks and other financial instituations (FI's) were able to bypass some of their money laundering checks. However, the definition of correspondent banking has now changed under 4MLD, bringing it closer in line with the recommendations of the Financial Action Task Force (FATF). This means that enhanced due diligence will be mandatory when undertaking cross-border correspondent relationships with non-EEA respondent institutions.
Penalties under 4MLD have also become much tougher, with firms now facing fines of up to 10% of their total annual turnover, or fines of up to €5 million for individuals. In addition, publicly issued reprimands may also be given, which will undoubtedly damage the reputation of the firm.
So, is it really worth taking the risk of getting it wrong?
How your firm can ensure 4MLD compliance
- Provide adequate information and training - Are all of your employees aware of the Directive and its impact on them? Are senior managers aware? Consider making it compulsory for all employees to complete an e-learning course on Money Laundering Prevention and 4MLD.
- Review any current AML/CTF regime - Is it fit for purpose? When did you last update your AML/CTF risk assessments, policies and procedures? Has your risk profile and exposure changed?
- Assess the impact that the new correspondent banking definition has on your relationship with other FIs- What enhanced due diligence is required? How do you assess the repondent's AML/CTF controls? Do you need to obtain senior management approval before establishing correspondent relationships?
- Be sure to make your approach more risk-based - Do you need to update your due diligence measures? Are there any policy and procedural changes you should make to ensure full compliance?
- Maintain adequate resources - Do you need to invest more time, money and people into seeing the changes through?
- Monitor and review - Plan to carry out reviews to ensure that any policy or process changes have been implemented fully and are working as they should. It may also be a good idea to reach out to industry experts to identify best practice and set a benchmark for your progress.
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