On July 5th, 2016 the European Commission published a “Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive (EU) 2015/849 (“4AMLD” = 4th AML Directive) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/(EC) (“5AMLD”).
Subject Matter and Scope of the fifth AML Directive (5AMLD)
5AMLD sets out a series of measures to counter the financing of terrorism in addition to 4AMLD, which was just recently adopted (May 2016). The EU Commission argues that 4AMLD still leave gaps in the oversight of many financial means used by terrorists, from cash and trade in cultural artefacts to virtual currencies and anonymous prepaid cards.
With 5AMLD, the Commission seeks to address those gaps. In particular, the Commission wants to provide for more transparency regarding beneficial owners of companies and trust and holders of anonymous prepaid products. At the same time, the Commission aims to avoid unnecessary obstacles to the functioning of payments and financial markets for ordinary, law-abiding citizens and businesses, by balancing the need to increases security with the need to protect fundamental rights, including data protection, and economic freedoms. However, after a high level review of 5AMLD, there is reasonable doubt, that the Commission reaches the latter goal, especially with regard to prepaid products.
Impacts on the European Prepaid and E-Money Business
Besides many other amendments to 4AMLD, e. g. virtual currency exchanges and wallet providers will come under the scope of 5AMLD, the latter in particular could massively impact the European prepaid and e-money business. In a nutshell:
Restriction of Simplified Customer Due Diligence for E-Money Products
Under 5AMLD, the legal requirements that allow the issuance of anonymous e-money products shall become significantly more restrictive than under 4AMLD. To that end not only the thresholds for identification needed for e-money products (e.g. MasterCard and Visa prepaid credit cards, Paysafecard) shall be lowered to EUR 150 (see Art. 12 paragraph 2 of 5AMLD). Such thresholds shall no longer apply, if e-money products, reloadable or not, can be used for online-payment.
As a consequence, 5AMLD would no longer allow for the issuance of anonymous e-money products (see Art. 12 paragraph 2 of 5AMLD), but in general require “full KYC”. Shortly after the publication of 5AMLD, the question was raised whether Art. 15 of 5AMLD would allow for a simplified customer due diligence with regard to anonymous e-money products (low-risk approach). From the current perspective, this seems rather unlikely, as the Commission explicitly identified anonymous prepaid products (when used for online payments) as a high-risk product.
If the “killer” provision of Article 12 of 5AMLD will come into force, it will massively impact the European e-money business. The industry and all stakeholders together with the competent regulators should – now more than ever – develop a cost efficient and convenient solution in contrast to the current complex and expansive KYC/AML procedures (see “KYC – Another Field of Application for Blockchain” for more information).
Restriction of the Acceptance of E-Money Payments by Acquirers
Acquirers are no longer allowed to accept payments carried out with prepaid cards issued in third countries where such cards do not meet requirements equivalent to the prevention of money laundering under 5AMLD. The problem with this provision is that one cannot identify all payment instruments (e.g. prepaid credit cards) as e-money. As a consequence, acquirers are no longer allowed to accept any payment cards from certain countries.
Implementation of 4AMLD and 5AMLD
According to 4AMLD, Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with 4AMLD by June 26, 2017. However, according to Article 67 of 5AMLD, 4AMLD as amended by 5AMLD shall be transposed into national laws by January 1, 2017.
5AMLD, of course, need to be approved by the EU Parliament and EU Council. However, in the light of the recent terrorist attacks and the very short transposition period, we assume that 5AMLD is based on a joint decision of the bodies of the European Union. Hence, a swift approval of 5AMLD is more likely than unlikely.
For a more detailed overview of 5AMLD see our redline of 4AMLD and 5AMLD. Please feel free to share and discuss. For the time being, we may look forward to the following trialogue discussions, especially with regard to Article 12.
To be continued …