In June 2017 the Fourth European Money Laundering Directive (MLD4) becomes mandated in the UK. MLD4 has been introduced to align the EU framework with international anti-money laundering and counter terrorism measures. Whilst this new legislation is a very positive step for security and crime prevention it adds further regulatory burden for firms.
In support of the European directive the FCA have promoted financial crime to one of the seven key risk areas. This will bring a new level of focus on firms’ systems and controls to prevent money laundering, bribery and corruption. Firms will be expected to have effective, proportionate and risk-based systems in place to guarantee that their business cannot be used for criminal purposes.
MLD4 will require all financial services companies to have eight new policies which include customer due diligence, awareness and alertness training, record keeping and senior management responsibility. If the required policies are not created and embedded by June next year firms and individuals could face public exposure, criminal charges, suspension and hefty fines.
At a time when global affairs are so changeable firms will need to ensure that their processes are sufficiently responsive. In practical terms firms will need to closely monitor global relations. Political sanctions can occur overnight with serious ramifications. Firms may need to rapidly deploy specialist resource which can be scaled up and down on a flexible basis to handle sudden increases in due diligence checking on customers who previously may not have warranted attention.
The mid-tier and smaller lenders, such as money service bureaus, are going to be particularly affected. Whether these smaller organisations have the resources to implement what’s needed to be complaint is a challenge that may be beyond some. This may force consolidation as firms merge to create sufficient economy of scale to carry additional costs and still to operate profitably. Certain firms engaged in more risky activities may also face the indirect difficulty of having normal banking facilities removed as the larger firms mitigate their own risk.