The EU’s standards on AML CFT – a regulatory update

The European Union’s (EU) approach to anti-money laundering and countering the financing of terrorism (AML/CFT) has undergone major changes over recent years. To harmonize the fragmented AML/CFT system, on 19 June 2024, the new EU AML/CFT regime was published in the Official Journal of the EU.

Harmonization

The new regime is a response to the increasing sophistication of financial crime, heightened cross-border transaction volumes and emerging financial technologies, all of which create new challenges for the regulators of each member state (MS). In essence the new regime comprises two key components, a new EU AML/CFT authority and an EU Single AML/CFT Rulebook.

The EU legislation establishing the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) is Regulation (EU) 2024/1620 of the European Parliament and of the Council of 31 May 2024 (AMLA Regulation).

Two pieces of legislation implement the EU Single AML/CFT Rulebook. The first is Regulation (EU) 2024/1624 of the European Parliament and of the Council of 31 May 2024 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (AMLR). The second is Directive (EU) 2024/1640 of the European Parliament and of the Council of 31 May 2024 on the mechanisms to be put in place by MS for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (MLD 6).

A key point to note about this new legislation is that for the first time the EU’s AML/CFT regime is being partly prescribed by Regulations which are directly applicable in MS. In addition, the EU has never previously had a dedicated AML/CFT authority.

As part of the proposal, the Commission additionally presented a regulation recasting the regulation on transfers of funds that aims to make transfers of crypto-assets more transparent. It was adopted in May 2023 and applies as of December 2024.

Timing

In terms of timing:

- The AMLA Regulation entered into force on 26 June 2024 and applies from 1 July 2025.

- The AMLR entered into force on 9 July 2024 and applies from 10 July 2027.

- MLD 6 also entered into force on 9 July 2024 and MS are required to implement it by 10 July 2027.

AMLR – the EU AML/CFT Single Rulebook

Previously, EU AML/CFT legislation has taken the form of Directives, so the AMLR is a novel solution. The AMLR will require MS to establish frameworks that are more uniform across the EU, as, unlike with Directives, the AMLR allows less leeway in transposition. Some of the provisions currently contained in the Fourth Anti-Money Laundering Directive (MLD 4) are being moved to the AMLR and the MLD 6. To help clarify what is being moved where, a correlation table appears in both the AMLR and the MLD 6 which identifies the MLD 4 provisions that are being moved to them.

Scope

To mitigate new and emerging risks, the AMLR expands the scope of the entities subject to the EU AML/CTF regime. The list has been extended to include additional non-financial entities including crypto-asset service providers, crowdfunding platforms, mortgage credit intermediaries, persons that trade in certain high-value goods and professional football clubs.

Key changes include the following:

- Internal policies, procedures and controls – AMLR builds on the provisions in the MLD 4 that deal with internal policies, controls and procedures that obliged entities need to have in place and it sets out new topics to be covered by those policies, controls and procedures.

- Beneficial ownership – AMLR sets out harmonised transparency requirements for beneficial owners’ identities and further clarifies the definition of “beneficial owner”, requiring greater detail on both the ownership and control of beneficial owners.

- Customer due diligence – AMLR strengthens the MLD 4 regime on customer due diligence measures. There are stricter measures relating to occasional transactions, ongoing monitoring and due diligence on the destination of funds. In addition, the definition of politically exposed persons has been broadened and a more granular approach to third-country due diligence introduced.

- Reporting and information sharing – AMLR lays down the obligation to report suspicious activities to Financial Intelligence Units (FIUs) and underlines an obligation to refrain from carrying out transactions in cases of unsatisfactory information disclosure.

MLD 6

The MLD 6 complements the AMLR by focusing on areas requiring coordination amongst the MS, particularly where national discretion is essential. MLD 6 builds on existing rules and introduces specific measures to address risks associated with particular activities and sectors. Unlike the previous Directives relating to AML/CFT, the MLD 6 targets areas where MS specific rules or cross-border coordination are essential. The MLD 6 also extends the AML/CFT regime by introducing obligations for MS to take steps in areas that require tailored national responses or enhanced transparency.

Further significant changes brought by the MLD 6 include:

- Beneficial ownership registries – to increase transparency of complex corporate structures. MS beneficial ownership registries must require accurate, up-to-date and adequate information on the beneficial owners to be included in such registries, to which access rights will be extended;

- Bank account registers – the scope of information to be included in the centralised registers and electronic data retrieval systems is being expanded and this will be accessible by MS FIUs, national AML/CFT supervisory authorities and the AMLA;

- Supervisory colleges – establishment of AML/CFT supervisory colleges in both the financial and the non-financial sectors for joint supervision of obliged entities.

AMLA Regulation

The AMLA is designed to be a central authority with the mandate to monitor and coordinate AML/CFT activities in the EU, marking a major shift towards greater oversight across the EU. It is also intended to ensure that the implementation and enforcement of AML/CFT measures are consistent and effective across all MS. The direct supervisory power given to AMLA is designed to address gaps and inconsistencies in the current system, where individual MS interpret and enforce AML/CFT laws at national level.

The AMLA will have two main areas of responsibility: AML/CFT supervision of in-scope entities (credit institutions and financial institutions, and groups of credit institutions and financial institutions); and supporting EU FIUs.

Conclusion

While the new EU AML/CFT regime will not come into immediate effect, firms should start to consider what they can do to prepare for it now. There is no doubt that there will be a lot more coming down the line on the new EU AML/CFT regime. In scope entities will need to keep an eye out for forthcoming consultations that will be issued and for national legislation in connection with the introduction of the new AML/CFT regime.

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