Business opportunities presented by AML5 are so substantial, financial institutions will adopt the standard significantly before the deadline, according to Iván Nabalón, CEO at ElectronicID.
The 5th Anti-Money Laundering Directive (AML5) was put into force on 9 July 2018, with a final implementation date for Member States established for 10 January 2020. It will be an update to AML4, which was enacted in July 2017, and will look to solve some of the limitations in the legislation, with electronic-money receiving various new legislations to comply with.
Some of the highlights of the regulation changes are that credit institutions and financial institutions will be banned from keep anonymous accounts, passbooks or safe-deposit boxes, and existing ones are subject to due diligence. In extension, the threshold for anonymous prepaid cards is being lowered from €250 to €150. Cryptocurrenices also feature greatly in the legislation, with digital currencies like Bitcoin being subject to money-laundering laws, and crypto wallet or trading platforms becoming subject to the same AML checks as all other providers.
While there are some significant changes outlined within AML5, Iván Nabalón believes that this is full of opportunity and that the main goal is to establish a standardised market in Europe for AML and KYC solutions.
He said, “Given that AML5 brings business opportunities, I believe it is going to be the banks, FinTech, insurance companies and other obliged subjects who are going to adopt the standard, even before the local regulatory authorities make the implementation, which represents fantastic news for the sector.
“In light of other more relevant policy priorities, implementations in the AML sphere by local EU member state regulators are prone to being produced by the cut-off date. In our conversations with regulators and reviewers, they are grateful that financial institutions are starting to place new community legislation at the heart of their new projects.”
Electronic IDentification is a software provider which is designed to bolster the identification capabilities of businesses. Its VideoID solution combines video streaming with AI and machine learning algorithms to identify people within seconds, across any device or channel. In doing this, it is capable of identifying customers remotely and to the same standard as face-to-face identification. The platform boasts one-click onboarding which helps to enhance the VideoID experience, by removing the need of API integrations and speeding up verification processes.
One of the problems facing the identification space is the market is heavily fragmented and there are various different standards across the world, and even the European Union. For example, the German financial regulatory authority BaFIN launched its own standard for identification through video-conferences in 2014. It outlined various aspects of video identity including correct procedures and the requirements under AML for the execution of the identification.
Shortly after this was released in Germany, the Spanish anti-money laundering authority Sepblac released its own regulations and authorised procedures for video conference identification. As well as this, it also developed remote video identification itself, which is more useful to banks. Nabalón said this was then imitated by countries across Europe and the rest of the world.
On the back of this, what AML5 is attempting to do is establish a standard for these various solutions which would enable banks to easily access the European market, he stated. Currently, institutions have to adapt their solutions so they can meet various different requirements of countries. However, banks and FinTechs would be able to access a “Digital Single Market” of 508 million people worth around €20bn, opening them to compete across the second largest economy and in a compliant manner.
He added, “Today we have got two situations: banks who steer clear of those types of strategy which would see them become pan-Europeans, as it’s seen as a brake on their growth. The other is FinTech and neo-banks who have been viewing a Digital Single Market with a stiff upper lip, and who use non-compliant solutions. For example, taking photos/selfies of people instead of using video-identification, and who over time confront serious investigations by supervisory bodies, precisely because they do not comply with the law, and thereby place their banking license in jeopardy. By way of example, this very thing is happening right now with one of Europe’s biggest neo-banks, who are under investigation by their supervisory body BaFIN in Germany.”
When it comes to digital identification, taking pictures of IDs or passports and a recording of a few frames of a user’s face is not compliant with AML regulations in a number of countries. These methods can be used in certain industries or if it is backed up by other strong identification information, but on its own, it doesn’t meet compliance. Electronic ID stated that this is because the process isn’t robust enough and lacks integrity for certain high-risk processes such as opening bank accounts, buying life insurance or 401ks.
Electronic ID uses full video identification tools and it will help businesses to meet the compliance requirements of AML5 to the highest level of security. The platform also counts with a range of documents called Kit AML5 and helps the company to keep up-to-date and help staff to understand the standards.
Between 2013 and 2018 there has been around $2.1bn invested globally into RegTech companies which are developing solutions which address AML regulations and issues, according to data by RegTech Analyst. This represents 23.8 per cent of the total $9.2bn which has been invested into the RegTech space in this time period, showing the high demand for AML services. Only one regulation received more attention over this time and that was KYC – it received $2.7bn globally, around 30.1 per cent of the capital globally.
With so much capital being injected into the space, it means technology is always evolving and one of the toughest parts of implementing a new regulation is the time that it takes, and it can mean it’s already outdated. However, Nabalón believes the changes which were implemented for AML5 were what the market needed.
“Just as with other standards, AML regulations are live and certainly we are going to get another AML6 in the next few years. However, I believe that so far, all the changes which could have been implemented have been done to favour the prevention of money laundering and the financing of terrorism,” he said.
To view ElectronicID’s whitepaper click here.
Copyright © 2019 RegTech Analyst
Copyright © 2018 RegTech Analyst