Throughout the history of Regulatory Compliance, authorities have tried to combat Money laundering at every scale. Surely, they have faced numerous challenges in this course due to the corrupt system. One of these regulatory bodies is the European Union. Notably, the EU has taken benchmark steps to mitigate financial crime. AML Directives are one of those steps. Basically, the Anti Money Laundering Directives are the regulatory requirements for the Member States of the EU.
How are the AML Directives streamlining KYC and AML?
Since there has been periodic development in the EU’s AML Directives, they have been improved regularly. Also, these regulatory guidelines have been improved in different phases. Overall, these guidelines facilitate the KYC/AML compliance process. Now, the Member States are bound to comply with these directives for regulating their business activities. Furthermore, they must know how to improve their KYC and AML internal processes according to the Directives.
How many AML Directives are there?
Actually, there are 5 AML Directives that were updates of their previous Directive. Indeed, each of the Directive is a better and enhanced version of the previous one. Moreover, the directives were made more stringent. Also, they direct the system towards a more strict and fool-proof version of the AML system. Following is the list of the directives with their basic information:
1st to 3rd AML Directive
The first to third Anti-Money Laundering Directive contains the initial developments of the AML system in the EU. It spanned over 16 years from 1991 to 2007. It contained knowledge of Money Laundering and Terrorism Financing and how to mitigate it. Also, the technological updates enhanced due diligence, and the member state role was defined.
4th AML Directive
After the 3rd AML Directive was introduced, the EU felt no need to formally update it for the next decade. In 2017, they introduced the 4th AML Directive as a whole new guide to fight Money Laundering. Primarily focused on the CDD, the 4th Directive introduced a new concept of Centralized UBO register and improved the Risk Assessment. Overall this Directive can be considered as the benchmark for it preceding and a base for upcoming directives. Furthermore, the technological advancements facilitating the Criminals also triggered the need for a new AML Directive.
5th AML Directive
Progressively, the 5th AML Directive was introduced just three years after the 4th AML Directive. It was due to the rapid technological shift and to fight the new ways of financial crime. In 2020, the 5th directive increased the scope of AML Directives in a trending world of Cryptocurrency. Also, it expanded the use of UBO registers at the National level. Moreover, the Member State role was also enhanced in the overall Risk Monitoring
6th AML Directive
By far, the latest updated version of AML Directives is the 6th AMLD. Outrightly, it is the most advanced and updated directive that is still in practice. Comparatively, the 6th AML removed all the existing loopholes from the 5th Directive. Likewise, due to the tech-shift, it listed ‘Cyber Crime’ as a separate entity and a predicate crime. The Risk-Based Approach was enhanced to a whole new level.
Final Words
Conclusively, the AML Directives are a robust advancement and a benchmark for the progressive nations to fight against Money Laundering. Moreover, the prime concern of the EU is making the financial industry secure and crime-free. In this way, they hope that trust in the system will be maintained and the customer’s identity will be protected from being misused for crimes. Lastly, AML Directives are in-line with the KYC AML Guidelines issued by the FATF. So, having proper guidelines before exercising compliance is mandatory for firms and other clients.
