This Directive aims not only to detect and investigate money laundering, but to also prevent it from occurring.
It brings big changes for e-money licence holders issuing prepaid cards.
What’s the issue with prepaid cards?
Although e-money licence holders must already comply with money laundering regulations, prepaid cards are still deemed to create an unacceptable money laundering and terrorist financing risk. This is because of their anonymity and the relative ease they offer for converting criminal proceeds into legitimate payment methods.
The horrific terrorist attacks that happened in Brussels and Paris were financed using
prepaid cards.
But 5MLD addresses this. It reduces the vulnerabilities created by prepaid card anonymity. The intention is to create a powerful deterrent by enhancing transparency.
From 2020, more customer due diligence will
be required
Subject to the feedback the Treasury receives from its consultation, from 10 January 2020,
5MLD will lower the existing thresholds for customer due diligence (CDD) for general purpose prepaid cards:
- CDD will need to be conducted where the prepaid card has a value of €150 or more.
- CDD will also be required to identify the customer in the case of remote payment transactions where the transaction amount exceeds €50.
This means e-money firms will have to conduct CDD on a greater proportion of transactions.
Will due diligence be necessary for every card
and transaction?
Not necessarily. But in order to qualify for CDD exemption, all of the following conditions
must be met:
- The maximum amount that can be stored electronically is €150;
- The payment instrument is not reloadable or has a maximum limit on monthly payments of €150, which can only be used in that Member State;
- The payment instrument is used exclusively to purchase goods and services;
- Anonymous e-money is not used to fund the payment instrument;
- Any redemptions in cash, or remote payment transactions, do not exceed €50 per transaction.
Conducting CDD
CDD must be integral to your anti-money laundering programme. CCD procedures will enable you to identify, as well as verify the identity of your customers; and determine any associated risks. CDD should be conducted not only when onboarding but throughout the entire timeframe or lifetime of the relationship with your customers.
As compliance technology specialists, we suggest you consider the following:
1. Know your customer (KYC)
Install a process to identify and verify the identity of your customers. There are many technology solutions out there that can facilitate this process.
2. Client and sanctions screening
Put in place a system or process to enable you to check if your clients (the purchaser of the prepaid card has negative press; or if they are or have been involved in criminal activities or terrorism.
3. Transaction monitoring
It is not enough to simply verify the identity of your customers. By definition, all money launderers pass these entry checks.Therefore, it becomes important to monitor all transactional activity and look for any emerging patterns that may betray the potential launderer.
4. Payment screening
This function checks who the beneficiaries of payments are and whether they on a sanctions’ or any other watch list, giving you the ability to block payments where necessary.
Each of these activities need to be effective in their own right to successfully identify suspicious activity and money laundering.
Other important 5MLD changes for prepaid cards
As prepaid cards are now plunged into a tight regulatory environment, it’s also important
to recognise:
- Anonymous prepaid cards issued in non-EU member states are to only be permitted where the state’s money laundering legislation is considered to be equal to that of the EU
- Members States are permitted to ban payments carried out using anonymous prepaid cards
Actions to consider
If you haven’t already, you’ll need to prepare for 5MLD and the lower CDD transaction thresholds it introduces. Your CDD workload will most certainly increase. Will your systems, resources and processes be able to cope? Will you need to improve your existing CCD procedures?
Get compliant
If you’d like support or advice on how technology can transform your compliance processes, our expert team at Napier is here to help.
Napier’s Intelligent Compliance platform is transforming compliance from legal obligation to competitive edge. We provide easy to integrate end-to-end compliance solutions powered by artificial intelligence and the latest data management technology.
Book a demo or email info@napier.ai to find out more.
Photograph by: rupixen.com
