The Fourth Money Laundering Directive (4MLD) comes into force on 27 June and is reflected in the new UK Money Laundering Regulations (MLR) 2017. Our AML learning suite reflects these changes and their practical implications.
4MLD: So What’s Changed?
As well-documented in the many commentaries available on the scope of this Directive, 4MLD, among other issues, confirms and reinforces the risk-based approach to money laundering prevention. Furthermore, in relation to customer due diligence (CDD), 4MLD expands the definition of politically exposed persons (PEPs), tightens up the criteria for applying simplified and enhanced due diligence and renews the focus on establishing beneficial ownership. The MLR will implement 4MLD in the UK.
At first glance, it may be tempting to view the changes as “more of the same”, but the devil is in the detail - for example, correspondent relationships are still viewed as high risk. However, the definition now covers all such relationships between different types of financial institution, not just banks. Simplified due diligence may still be acceptable, but there is a greater onus on firms to justify its application.
How Does This Affect Employee Training?
In assessing the training implications, it is helpful to turn to the MLR, which requires employees to be:
- Made aware of the law relating to money laundering and terrorist financing
- Regularly trained in how to recognize and deal with transactions and other activities which may be related to money laundering or terrorist financing
So training must cover, as a minimum, the law, offenses, and penalties, as well as indicators of suspicious activity and the firm’s reporting mechanisms.
Our philosophy, whether developing catalog or custom courses, has always been to focus on practical learning aimed at equipping the learner with the knowledge they need to do their job.
This is reflected in our presentation of suspicious activity reporting in our two newest AML offerings, Financial Crime Essentials. For example, common risk indicators are explained in both courses, which illustrate them via short case studies. Learners also complete an exercise in which they must determine whether or not to report suspicions.
These courses also examine the risk-based approach, the importance of CDD and the firm’s own identification and verification (ID&V) controls. The content, streamlined to reflect the MLR, sets out:
- Factors to be considered when risk-assessing clients
- ID&V requirements, including evidencing beneficial ownership
- The circumstances in which enhanced due diligence is required
- The new definition of a PEP
Our new Fighting Financial Crime in Practice course is especially worth a look in this context. The course incorporates an extended case study, focusing on a fictitious firm and its client, in which the learner must make a series of decisions as the relationship develops. Exercises include carrying out a risk assessment, identifying documents to be obtained during CDD and reviewing changing client circumstances.
Alternatively, our Politically Exposed Persons course focuses on the risks posed by PEPs and how firms must manage them.