The Fifth Money Laundering Directive is proceeding along the European Union's legislative process. In this alert we consider the latest revisions to the text of the Directive.
On 30 November 2016, the Presidency of the Council of Europe (which comprises Ministers from the 28 EU Member States) published a third Presidency Compromise text. This reflects amendments made by the Slovak Presidency in an attempt to reach a common agreed position.
This may open the way to negotiations with the EU Parliament whose rapporteurs published a draft report on 7 November 2016 setting out their proposed amendments.
The most significant changes to the third Presidency Compromise text from the previous version include:
- Remote payment identification: as in the previous text, the requirement to identify customers for remote payment transactions exceeding 50 euros will apply from the date MLD5 comes into force (see below). There is, however, a transitional available for remote payment transactions of 50 euros and less. In this regard, the text has been amended to extend this period from two to three years, from (it appears) the date that MLD4 (rather than MLD5) came into force (this is 26 June 2015), which would therefore expire on 26 June 2018.
- Third country issued anonymous cards: MLD5 imposes potentially onerous obligations on card schemes to prevent the use of anonymous pre-paid cards issued in third countries.
Third country issuers will have to prove that they apply equivalent customer due diligence (CDD) measures to those in the EU if such pre-paid cards are to continue to be accepted. The latest text raises the bar on firms to establish that equivalent CDD has been performed. This was previously expressed as "sufficiently proven". In other words, issuers would need to provide "sufficient proof" that they were applying equivalent CDD to anonymous pre-paid cards. "Sufficiently" proven provided some wriggle room and introduced a dose of realism in relation to expectations on schemes. It implied that this was not an absolute obligation and that schemes would have to take reasonable steps but could not be held to a strict liability standard. However, the new text represents a hardening of the position. The new text suggests a higher degree of confidence will be required on the part of schemes. It remains to be seen how this will be reflected in the language of the UK and other Members States' national legislation, but it is likely to manifest itself in a more absolute obligation which will make compliance more difficult.
- Ban on anonymous prepaid cards: the ability of Member States to ban the acceptance of payments carried out by anonymous prepaid cards (issued in third countries) on their territory is no longer to be subject to anything contained in PSD2. This change means that Member States will not need to consider wider payments issues (including around competition law considerations) and can base their decision principally on AML and CTF considerations.
- Beneficial ownership: the new text waters down the obligation on Member States to provide public access to registers of beneficial ownership of corporate and other legal entities including trusts. Access is to be granted on the basis of legitimate interest although individual Member States may choose to provide access on wider grounds.
As for implementation dates for MLD5, instead of 26 June 2017 (when MLD4 takes effect), the text has been amended to provide for transposition into national law within six months of MLD5's publication in the Official Journal. This could mean late summer or autumn 2017. This amendment recognises that the original target date of 1 January 2017 (let alone June 2017) was unrealistic taking into account both the legislative process, and the need for firms to prepare. Access to information on beneficial ownership in the registries is to be granted within 18 months of this date, although the (more limited) UK PSC Register is, of course, already up and running.
The final text of MLD5 will, of course, depend on the outcome of negotiations between the Presidency (on behalf of the Council) with the EU Parliament, and so of course on all these matters there may be further change.
Click here to see text of Third Presidency Compromise.