The 6th AML Directive is a new legislation from the EU that is meant to tackle money laundering and terrorist financing.
It modifies the previous rules to extend the regulation of new forms of financial crimes. This directive makes it necessary for banks and other financial businesses to reduce funding for illegitimate activities.
The 6th AML Directive is a big change that affected the financial world. That’s why it is more severe, and it introduces new rules that companies have to obey.
Therefore, such updates are necessary to enhance the protection of the financial system. Criminals are always coming up with new ways of concealing their operations.
This article will explore how the 6th AML Directive impacts the financial industry. You will get to know the following changes and their implications for financial businesses.
Key Changes and Implications
The 6th AML Directive has several significant changes to the existing anti-money laundering legislation.
These changes are intended to address some of the emerging forms of financial crimes and reduce instances whereby offenders can mask their operations.
By revising the definitions, enhancing the penalties, and fostering cooperation, the directive is expected to enhance its role. It will combat money laundering and financing of terrorism in the EU.
Below are the most significant changes and what this process will entail for the financial industry.
Expanded Definition of Money Laundering
The 6AMLD contains a list of additional types of financial crimes. That is why it also incorporates cybercrime and virtual currencies into its list of offenses.
In the year 2023, over 1.5 billion US dollars of cryptocurrency were again associated with money laundering.
This update helps to include more types of unlawful actions, and it becomes more difficult for scammers to stay unnoticed.
Bonus: Find out how the current rules of the 6th EU AML directive affect your financial organization and how it can minimize the risks and sanctions.
Increased Penalties and Sanctions
The 6th EU AML directive raises the penalties of money laundering to another level. Companies non-compliant with the rules may be subjected to fines that range from 0.1 percent to 10 percent of their annual turnover.
EU fined companies more than €200 million in 2023 for the violation of AML rule. Such harsher penalties are designed to enhance compliance and check society against engaging in unlawful deeds.
Impact on the Financial Sector
The 6th Anti-Money Laundering Directive will be more influential on the financial industry. Therefore, It changes the way compliance approaches and processes are implemented.
Organizational members are required to spend on new technologies, training, or the improvement of organizational policies to address the latest standards.
1. Increased Operational Costs
The measures that the 6AMLD has implemented in the financial industries engaged will increase their operating costs.
For instance, expenses incurred in training employees and acquisition of technology are expected to increase by about 15 percent in the next year.
Taking into consideration the 2023 data of the major banks, the average expenditure on AML compliance spiked by €50 million. It demonstrates the cost of compliance with increased regulation.
2. Enhanced Regulatory Scrutiny
It will take some more time for the regulators to fine-tune the new requirements. The changes will increase the rate of enforcement for financial institutions.
As per the data from 2023, the EU initiated 30% more audits of the AML compared to 2022. It opens up increased pressure, and strict punitive measures for noncompliance will be seen in the future.
3. Greater Focus on Risk Management
The concepts of the increased specific measures identification and risk assessment are predefined by the AML Directives.
It will lead financial institutions to improve risk management. In 2024, 70% of institutions are strengthening their risk management systems based on the new requirement. It proves the directive’s impact in boosting the security of the sector.
4. Improved Collaboration Across Borders
This directive is expected to enhance collaboration between financial institutions and various regulatory authorities and to share information.
EU member states enhanced their collaboration to fight against money laundering by up to 25%.
This has proved the effectiveness of the directive in enhancing the cross-border approach to the fight against financial crimes.
How Will the 6th AML Directive Affect Your Compliance Strategy?
The EU Directive will lead to the need for institutions in the financial market to make a fairly radical overhaul of their compliance plans.
To this effect, organizations will be required to implement increased levels of accuracy in their due diligence and risk analysis.
It will take a lot of time to open up new technologies and make necessary changes within the working process to correspond with the latest standards.
Consequently, the costs of compliance are likely to increase, but these initiatives are imperative for businesses to reduce penalties and enhance the shield against financial crime.
