In April, the Joint Committee of the three European Supervisory Authorities’ (EIOPA, ESMA and the EBA) Sub-Committee on Anti-Money Laundering (the “AML Committee”) published two reports on the implementation of the Third Money Laundering Directive (the “Third MLD”) by EU Member States. The Third MLD takes the approach of minimum harmonisation, which means that each Member State may go beyond the minimum standards set out in the Third MLD.

First Report – Simplified Due Diligence Requirements
The first report, titled the ‘Report on the legal and regulatory provisions and supervisory expectations across EU Member States of Simplified Due Diligence Requirements where customers are credit and financial institutions’ (the “SDD Report”), provides an overview of EU Member States’ legal and regulatory provisions and supervisory expectations in relation to the application of the Simplified Due Diligence (“SDD”) Requirements of the Third MLD.

The SDD Report finds that the Member States have adopted significantly different approaches to the SDD provisions under the Third MLD at national level, both in relation to the scope of SDD and the degree of freedom of judgement for institutions when assessing whether SDD can be applied in individual circumstances. The SDD Report notes that some, but not all, of these differences are to be expected due to the Third MLD’s minimum-harmonisation approach.

There is concern, however, that different requirements and practices at national level affect the soundness of Europe’s AML/CTF regime.  The AML Committee proposes that if the differences identified are considered to be undesirable and counterproductive to an efficient European AML/CTF regime, these differences could be addressed by clarification of relevant provisions in EU legislation.

Second Report – Beneficial Ownership Requirements
The second report is titled the ‘Report on the legal, regulatory and supervisory implementation across EU Member States in relation to the Beneficial Owners Customer Due Diligence requirements under the Third MLD’ (the “Beneficial Ownership Report”).  The Beneficial Ownership Report analyses EU Member States’ implementation of the customer due diligence requirements applicable to beneficial owners. The report sought to identify differences in the implementation of the Third MLD at national level and whether such differences could be exploited by criminals for money laundering and terrorist-financing purposes.

The Beneficial Ownership Report finds that EU Member States have adopted significantly different approaches to the beneficial ownership requirements under the Third MLD at national level. In some cases, differences are amplified by variations in the national interpretation of the risk-based approach. The Beneficial Ownership Report identifies significant differences in the following areas: (i) the identification of beneficial owners; (ii) the verification of beneficial owners’ identity; (iii) the availability of information on ownership and control structure of customers.

The AML Committee considers that there is a risk that the differences identified pose a threat to the effectiveness of the European AML/CTF regime. The AML Committee has therefore invited the EU Commission to consider whether convergence of national beneficial ownership identification standards should occur.

From the perspective of life assurance companies, the two reports highlight the difficulties that are still facing companies wishing to operate in a number of EU markets. While improvements have been made in harmonising the requirements of different jurisdictions, differences still remain. The hope would be that a convergence of anti-money laundering standards would reduce the costs of complying with anti-money-laundering requirements and the two reports are encouraging in that they show that these concerns are being examined at an EU level.

For further information, please contact Eoin Caulfield or Niall Campbell of our Insurance and Reinsurance unit.

Contributed by Niall Campbell