On 5 February 2013, the European Commission issued its proposal for the 4th Anti-money Laundering Directive. The proposal represents the EU’s response to the revised recommendations which the Financial Action Task Force adopted in February 2012. The revisions also reflect the Commission’s report on the current AML/CTF regime, which was adopted in April 2012.
Many of the headline changes to the EU’s current AML/CTF regime are not relevant to life-assurance companies. There are, however, some suggested revisions which will require changes to the checks that are carried out during the life cycle of life-assurance contracts.
Before describing the changes, it is worth noting that many of the revisions are intended to address issues which designated bodies are experiencing under the existing regime. While implementing the changes will necessitate designated bodies incurring costs, it is hoped that the net result of the proposed revisions will be beneficial in the long term.
One such change is a clarification of how the AML/CTF regime interacts with the data-protection regime in cross-border scenarios. Difficulties can arise where personal data is held in the Member State of a branch, but which arguably needs to be included in a suspicious-transaction report in the Member State where the company is incorporated. Under the proposed revisions, suspicious-transaction reports which are made by a branch will need to be made to the financial-intelligence unit (i.e. the government agency responsible for combatting money-laundering and terrorist financing) in the Member State where the branch is situated. Once this is done, the company’s reporting obligations will be satisfied. This clarification is supported by proposals aimed at increasing the cooperation between the various financial-intelligence units.
The revised proposals also represent an effort to clarify the concept of beneficial ownership, and the obligations which designated bodies have where beneficial ownership arises. While the obligation to hold information in respect of beneficial owners who have a 25% level of ownership remains, the proposals seek to clarify the threshold to which this 25% relates.
Some of the revisions are, however, likely to be met with some resistance by some parts of industry. The explanatory text to the proposal makes it clear that existing exemptions to the obligation to carry out due diligence will be discontinued. Additionally, it is stated that the Commission’s view is that the current rules regarding the application of simplified due-diligence are overly permissive. Similarly, the “white-list” process (whereby third-country regimes are deemed equivalent) is being removed as the Commission views that process as not being appropriate in the context of the risk-based regime. The level of due diligence carried out by certain designated bodies may therefore increase under the new regime.
It is also interesting to note that it is proposed that the new regime will contain a minimum level of sanction which Member States will have to apply.