Money launderers are employing increasingly sophisticated methods, as seen in the funding linked to terrorism in Europe, massive offshore corporate data leaks and the use of cryptocurrencies and digital channels.

In response, EU regulators have introduced a new set of rules in the fight against financial crime: the 5th Anti-Money Laundering Directive (5MLD). The directive - due to be transposed into UK law in January 2020 - raises the bar on requirements regarding ultimate beneficial owners (UBOs), politically exposed persons (PEPs), enhanced due diligence (EDD), electronic identification and verification (eID&V), and sharing information with Financial Intelligence Units (FIUs).

While most industry recommendations on how to tackle the challenge of 5MLD focus on tactical fixes, there are two areas where firms can leap ahead of the competition: a comprehensive data strategy, and financial crime controls that centre on the customer journey.

Data strategy

Under 5MLD, financial services firms need to meet new requirements in identifying UBOs, reporting possible discrepant information and ensuring the use of up-to-date PEP lists issued by member states with correct definitions and accurate secondary identifiers.

In combination with a wider industry trend of maintaining accurate and up-to-date data, these changes should form part of a broader data management and information-sharing strategy - one that considers internal controls and processes, external data source providers, and data protection requirements such as GDPR.

We expect firms increasingly to consult external data sources to plug gaps in their existing customer data and to maintain and access UBO data outside the UK. They will also need to adapt to more collaborative data usage to verify UBOs and report discrepancies.

Customer-focused controls

Merely implementing additional tactical KYC and CDD checks to meet 5MLD compliance is not a sustainable approach. With challenger banks setting the standard for simple and fast onboarding, incumbents should use regulatory change as an opportunity to improve the customer experience and streamline existing processes.

The first step towards improving the customer journey is to understand which data points need to be customer-driven and which can be otherwise derived. Other steps include using smart information extraction and sharing strategies, such as APIs with data registers, and utilising eID&V to reduce reliance on paper forms or branch visits.

AML as a source of competitive advantage

5MLD highlights the opportunity for banks to develop a sophisticated data strategy and implement efficient and customer-friendly processes. Strong understanding of risk profiles and the KYC experience will in turn enhance a firm's brand as an effective and secure institution.

As the financial crime landscape evolves, a key advantage for banks is building and retaining customer trust. A financial crime risk programme which is not only functional but holistic in its approach can provide firms with a competitive edge and go a long way towards building that trust.

For more information about how BCS helps financial institutions to implement successful AML programmes and meet compliance with AML regulation, see the BCS website or get in contact with Rebecca Collier Rebecca.Collier@bcsconsulting.com or Philipp von Stackelberg Philipp.vonStackelberg@bcsconsulting.com. 

If you are interested in this topic, you may be interested in attending the Free Webinar: Beneficial Ownership Checks: Successfully Tackling the New 5MLD Compliance Challenges. Learn more here.