Firms Face 5AMLD Headache

New research suggests the majority of regulated firms face fines for non-compliance with the fifth anti-money laundering directive. However, COVID-19 is not to blame.

A study from LexisNexis systems has found that financial firms are only 55% of the way through their implementation plans for the fifth anti money laundering directive, nine months after it became law. The figures suggest the majority of regulated firms could be facing fines for non-compliance from the UK’s financial regulator for failing to fully comply with the directive.

The fifth anti-money laundering directive came into force in the EU ten months ago. All firms falling within the scope of the legislation were supposed to be compliant immediately. However, confusion about the aims of the legislation seems most firms are struggling to meet the requirements.

One thing which is not to blame - according to the study - is our old friend, COVID-19. Far from hindering plans, the national lockdown, which saw millions of people forced to work from home, appears to have sped up plans in the majority of cases. Almost two thirds (64%) of the professionals surveyed said lockdown had hastened their plans. The figure rises to 70% for banks.

Without the breathing space, lockdown brought, progress could be even further behind schedule.

What’s the hold up?

The problem appears to stem from confusion amongst financial professionals about what 5AMLD aims to achieve. Fewer than half of survey respondents correctly answered that it was brought in to prevent the financial system being used to fund criminals or to strengthen transparency rules and prevent the large scale concealment of funds. This figure fell to 39% amongst banking sector professionals. Ironically, it is this sector which arguably has the biggest role to play in keeping illicit funds out of the system.

The data suggests firms need to do much more to educate all their stakeholders about how illicit funds are finding their way into the system and how to combat the problem. Michael Harris, Director of Financial Crime Compliance, at LexisNexis® Risk Solutions said:

‘It’s no big surprise that firms aren’t yet fully compliant with 5MLD, but it is slightly disappointing that so many are so far behind and that firms appear not to be prioritising this important legislation, given the positive impact it can have on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing."

The report highlights a number of common problems in the sector including ineffective suspicious activity report regimes, an inadequate use of data and technology and a legal system which inhibits the sharing of information. The fifth anti-money laundering directive was intended to address many of these problems. With the laws having been in effect since January, the time has come for firms to move more quickly to put them into action.

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