Identity Verification, KYC
2021 KYC and AML Regulations Roundup
As 2021 comes to an end, let’s look back at what changes this year brought when it comes to AML and KYC regulations, rules, and policies around the world.
It is safe to say that the year following 2020 – the time marked by the impact of the Covid-19 pandemic – has been all about planning and implementing changes in that scope. The world has turned and transformed in many ways when it comes to procedures and handling everyday errands – and in order to meet new expectations and norms, some adjustments have been made to fit the new “normal”.
6th Anti-Money Laundering Directive (Europe)
Starting in 1991, the Anti-Money Laundering Directives were laws implemented by the European Union, in order to fight money laundering and financial crimes across the member states of the Union. Fifth Anti-Money Laundering Directive came into effect in January 2020, and one of the biggest and most important changes was that cryptocurrencies and cryptocurrency exchanges were then officially regulated by the EU. Less than a year later, the Sixth Directive was issued with the implementation date of June 3rd, 2021.
6AMLD seeks to address issues of certain “loopholes” and inconsistencies of previous directives, and harmonizes the definitions of money laundering offenses, as well as extends the criminal liability for those committing those offences. Under the 6AMLD, also those who passively assist money launderers or “permit it” on their platforms. Previously, only companies would be held accountable. Now, individuals within organizations can be prosecuted for crimes that include “aiding and abetting”, “attempting”, and “enticing” money laundering and related crimes.
Previously, only companies would primarily be held accountable. Now, individual decision-makers within an organization can also be prosecuted for crimes including “aiding and abetting”, “inciting”, or “attempting” money laundering.
THE AML PACKAGE
Moreover, on July 20th, 2021, the European Union took a step further to enhance the security and tighten the laws regulating anti-money laundering procedures. The Union has introduced its “Anti-Money Laundering Package” (“AML Package”). The AML Package consists of two new regulations, a new AML Directive, and the proposal for the revision of an already existing Regulation on the transfer of funds.
All of the changes and new regulations that came into effect in 2021, are yet another step to strengthen the AML laws around the world. Due to the transformation in how people deal with everyday responsibilities – such as handling finances, education, health, e-commerce, and the shift towards online services and solutions, the need for safer identity verification and stronger KYC policies grew even stronger. To ensure the highest safety and compliance with strict regulations, it is necessary to choose the right KYC provider – and that’s a must for businesses of all sizes.
Some of the main changes introduced are as follows:
- The list of entities obliged to prevent money laundering and terrorist financing atempts will be extended to include cryptocurrency-related services, as well as other sectors, such as crowdfunding platforms, investment migration operators,
- Policies and procedures regarding customer due diligence (CDD) will be more detailed, including policies regarding third countries, whose AML policies pose a threat to the EU’s financial market. The EU aims to make the measures more harmonized across Europe.
- The definition of “politically exposed person” is clarified
- Requirements for the processing of personal data are made more consistent with EU data protection rules.
Crowdfunding
On November 21, 2021, a new Regulation (2020/1503) affecting crowdfunding services in Europe came into force. The new regulation creates a new standard for both equity-based and crowdlending-based platforms. Undertaking proper due diligence on the project owners seeking financing became one of the main requirements introduced by the regulator.
The rule also imposes a variety of penalties on non-compliant platforms, including forcing them to publish a public statement about the infringement of the regulation, bans on the management team, and administrative fines of up to EUR 500,000 among other penalties.
Cryptocurrency trading
In 2021, Canada began classifying crypto-related businesses as money service businesses and required that they register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) Canada has also increased its expectations towards crypto exchanges, which are now required to verify their users and comply with KYC regulations on the same basis as other financial institutions in the country.
In the UK, the exchanges are required to register with the Financial Conduct Authority (FCA). Moreover, the regulator has introduced a set of specific KYC/AML requirements that crypto exchanges are obliged to comply with.
Further regulations regarding crypto exchanges were also described in the 6AMLD mentioned above. The main rule introduced by the regulator was the prohibition of anonymous cryptocurrency transactions. The exchanges are now required to enforce a proper KYC procedure in order to gather necessary information on its users.
USA – FinCEN
US FinCEN Offers Guidance On The Final Customer Due Diligence (CDD) Rule
The Financial Crimes Enforcement Network (FinCEN) recently released guidance in the form of answers to frequently asked questions regarding the recently adopted Final CDD Rule.
In the released guide, FinCEN specified how financial institutions under the regulation (such as banks) should perform their customer due diligence process. FinCEN specified that “Covered financial institutions must establish policies, procedures, and processes for determining whether and when, on the basis of risk, to update customer information to ensure that customer information is current and accurate.”
The guide described the roles and responsibilities financial institutions have to better customer due diligence processes and policies, in order to lower the risk of financial crimes.
Canada
Besides cryptocurrency-related businesses, Canada has added a number of industries and businesses to fall under the scope of the PCMLTFA regulations, requiring them to register as reporting entities. The new sectors falling under the regulatory umbrella are: prepaid credit card issuers, life insurance providers, foreign money services businesses, businesses involved with virtual currency transactions .
Listed businesses are now required to register with FINTRAC and establish a proper risk assessment, in order to assess risks with clients and within the business. They are also required to perform customer and business due diligence, and develop a system to track and review transactions compliant with specific reporting requirements for their sector.
Legal changes and new regulations that came into force in 2021 are yet another step to strengthen AML policies around the world. Due to the change in the way people deal with banking and finances or even education, health, and shopping processes, with a significant increase in preferences for choosing online services and solutions, the need for more secure identity verification and stronger KYC processes has increased.
For the highest safety and regulatory compliance, it is important to choose the right KYC services provider.
Fully-Verified was created as answer to its founders collectively losing over $150 000 to various types of fraud in their eCommerce businesses.
