knowledge 27 June 2018 |

Adapting to New Threats in Money Laundering and Terrorist Financing: MLD5

Among other things, MLD5 will: 

• extend the scope of persons subject to AML/CTF requirements; 
• reduce the limits and maximum amounts for the application of simplified due diligence to pre-paid cards; 
• allow public access to certain information held in the central register of beneficial ownership of companies operating within the EU; and 
• require Member States to put in place centralised automated mechanisms allowing the identification of certain account holders. 

Member States must transpose MLD5 into national law mostly by 10 January 2020. The exceptions to this time frame are specified below.

Scope of MLD5  

MLD5 expands the scope of MLD4 in a number of respects. Most significantly, it will apply to providers engaged in exchange services between virtual and fiat currencies and custodian wallet providers, both of which will also be subject to the new registration requirements under MLD5.

MLD5 defines “virtual currency” to mean a digital representation of value that is accepted by natural or legal persons as a means of exchange, and which can be transferred, stored and traded electronically, but which is not issued or guaranteed by a central bank or public authority, is not necessarily attached to a legally established currency and, does not possess a legal status of currency or money.

Custodian wallet provider is defined to mean an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies.

E-money

Under MLD4, Member States may allow obliged entities to apply simplified due diligence measures with respect to e-money which meets certain conditions, including threshold amounts. MLD5 reduces these amounts and introduces restrictions on anonymous prepaid cards issued in third countries.

MLD5 also amends the definition of “e-money” to exclude certain types of e-money outside the scope of the Payment Services Directive (EU) 2015/2366 under the limited network exemption and the telecommunications exemption in MLD4.

Beneficial Ownership – Corporates

MLD4 requires Member States a) to ensure that corporate and other legal entities obtain and hold beneficial ownership information and b) to establish and maintain a central register of beneficial ownership. MLD5 amends and strengthens these requirements in a number of respects. Most significantly, MLD5 provides that certain beneficial ownership information must be made available to any member of general public including the person’s name, month and year of birth, country of residence and nationality, as well as the nature and extent of the beneficial ownership information held. Member States have the option of making this available on the condition of online registration and the payment of a fee and can impose restrictions on access in cases where there is a risk of fraud, violence or intimidation. MLD5 also specifies the competent authority that must have access to the register. It also restricts the extent to which certain information may be exempted from access.

MLD5 also imposes a new reporting obligation on obliged entities to report discrepancies that they find between the beneficial ownership information in the register and that available to them. This obligation also applies to competent authorities, as long as it does not unnecessarily interfere with their functions.

MLD5 provides that Member States must ensure that the register of beneficial ownership information  be set up by 10 January 2020. The Companies Registration Office (“CRO”) will be responsible for putting in place and maintaining the central register of beneficial ownership. Additional legislation is needed to provide for the requirement that entities submit this information on beneficial ownership to the CRO. It is anticipated that this additional legislation will be available from the Department of Finance before the last quarter of 2018 and will appoint the CRO as the Registrar of Beneficial Ownership of Companies and Industrial and Provident Societies.

Beneficial Ownership - Trusts

MLD4 requires Member States to (a) ensure that trustees of any express trust governed under their law to obtain and hold adequate, accurate and up-to-date information on beneficial ownership regarding the trust and (b) hold that information in a central register where the trust generates tax consequences.

MLD5 extends the obligation to hold a trust’s beneficial ownership information in a central register to all trusts and other types of legal arrangements having a function or structure similar to trusts.  Member States must identify the characteristics to determine where legal arrangements have a structure or functions similar to trusts with regard to such legal arrangements.   

As in the case of corporates, MLD5 also extends access to the central register.  Specifically, access tothe information on beneficial ownership must be available to any natural or legal person that:

• can demonstrate a legitimate interest; or
• files a written request in relation to a trust or similar legal arrangement which holds or owns a controlling interest in any corporate or other legal entity through direct or indirect ownership or through control by other means.

In these cases, the information accessible will consist of the name, the month and year of birth and the country of residence and nationality of the beneficial owner as well as the nature and extent of the interest held. Member States can also choose to make the information available on the condition of online registration and the payment of a fee. MLD5 provides that the register be set up by 10 March 2020.

Identification of Account Holders

Member States must put in place centralised automated mechanisms, such as central registries or central electronic data retrieval systems, which allow the timely identification of any natural or legal persons holding or controlling payment accounts and bank accounts identified by IBAN and safe deposit boxes held by a credit institution.

This information must be directly accessible by financial intelligence units (“FIUs”) and national competent authorities when fulfilling their AML obligations. Member States must also ensure that FIUs and competent authorities have access to information which allows the identification in a timely manner of any natural or legal persons owning real estate, including through registers or electronic data retrieval systems where they are available.MLD5 provides that these centralised automated mechanisms must be set up by 10 September 2020.

Next Steps

As mentioned, generally Member States are obliged to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive by 10 January 2020, except where stated to the contrary above (for establishment of the centralised automated mechanisms and registers). However, the requirement that Member States ensure that financial institutions only accept payments carried out with anonymous prepaid cards issued in third countries where those cards meet the new requirements in MLD5 must be in force by 10 July 2020.