The Finnish Government proposal implementing the provisions of EU’s Fifth Anti-Money Laundering Directive (the “Fifth AML Directive”) was submitted to the Parliament on 4 October 2018. The proposal includes, inter alia, amendments to the Anti-Money Laundering Act (the “AML Act”) and enactment of two new acts. The objective is that the proposed legislation would enter into force on 1 January 2019.
Only approximately one year after the AML Act entered into force in Finland, it will be amended due to the latest amendments to European anti-money laundering legislation. The amendments form part of the EU Commission’s action plan on strengthening the fight against terrorist financing and must be implemented by the Member States by 10 January 2020.
Our observations of the proposed key amendments to the current legislation are set out below. In summary, the Fifth AML Directive significantly limits anonymity in the financial sector and tackles money laundering and terrorist financing in new ways. Continuous compliance efforts are therefore needed from both current and new reporting entities under the AML Act.
1. Extension of the Scope of the AML Act to Crypto Market
Crypto currencies or virtual currencies are currently not explicitly regulated by Finnish law and they are not considered to be payment instruments under the payment service legislation. The proposed amendments will both define virtual currencies for the first time under Finnish law and also set specific requirements for those providing services related them.
The scope of the AML Act would be extended to cover custodian wallet providers and providers engaged in exchange services between virtual currencies and fiat currencies.
This means that, in the future, all crypto exchanges and all providers of electronic wallets for virtual currencies such as bitcoin would be covered by the AML Act. These platforms and providers would be required to register with the Finnish Financial Supervisory Authority and they would have to meet the requirements of the AML Act including the same responsibilities as other reporting entities, such as monitoring transactions and implementing customer due diligence.
Additionally, a new Act on the Providers of Virtual Currencies (FI: Laki virtuaalivaluuttojen tarjoajista) is being proposed. The scope of the Act would cover also issuers of virtual currencies, although in many occasions the identity of such is not known.
The scope of the AML Act would further be extended to cover e.g. art dealers (with respect to transactions where the value amounts to 10,000 euros or more) and all forms of tax advisory services.
2. Beneficial Ownership Information
Registers of beneficial ownership information required under the current AML Act will come into effect as planned. Accordingly, all legal persons, excluding listed companies, are required to keep information on their beneficial owners as of 1 January 2019 and enter beneficial owners to the registers maintained by the Finnish Patent and Registration Office by 1 July 2020.
In addition, reporting entities and competent authorities would have to notify the holder of the registers of discrepancies found between the beneficial ownership information on the registers and the beneficial ownership information they hold otherwise.
Furthermore, beneficial owners would have an obligation to provide the respective companies with their beneficial ownership information required for the registers.
3. Politically Exposed Persons
Politically exposed persons (PEPs) continue to be high risk for the purposes of the Know Your Customer (KYC) procedures and require enhanced due diligence.
In order to enable reporting entities to better identify PEPs, offices and functions that qualify as politically exposed on national level including also nationally registered international organizations would be specified in a separate Government Decree.
4. High-Risk Third Countries
According to the proposed amendments to the AML Act, reporting entities would be required to implement enhanced due diligence measures to monitor suspicious transactions involving high-risk countries more strictly.
This includes, inter alia, obtaining information on details regarding the nature of the relationship, the origin of the transferred funds and the business partner’s motivation to liaise. Additionally, the reporting entity’s higher management would be required to give consent to the business relationship. Also existing business relationships would be strictly monitored.
According to the proposal, the Finnish Financial Supervisory Authority would be given further authority in the subject matter, after which it may for example refuse reporting entities from high-risk third countries to establish themselves in Finland or prevent reporting entities from Finland to establish themselves in high-risk third countries.
5. Monitoring of Bank and Payment Accounts
According to the Fifth AML Directive, Member States shall establish centralized automated mechanisms, such as central national registries or central electronic data retrieval systems, for bank and payment accounts to ensure the quick identification of all accounts of any individual by the financial intelligence units and competent authorities.
In Finland, a new Act on the Bank and Payment Accounts Monitoring System (Fi: Laki pankki- ja maksutilien valvontajärjestelmästä) is being proposed to enable direct access to relevant account information by competent authorities. The centralized monitoring system would include both automated interfaces for information searches and a register maintained by the Finnish Customs.
Credit institutions and their Finnish branches must establish an electronic data retrieval system that enables providing the information to the competent authorities without delay. Payment institutions, electronic money issuers, custodian wallet providers, providers engaged in exchange services between virtual currencies and fiat currencies and issuers of virtual currencies as well as their Finnish branches must provide information to the bank and payment accounts register.
6. Electronic Money Products
Under the current AML Act, reporting entities may apply simplified due diligence measures with respect to e-money which meets certain conditions, including threshold amounts. The threshold for identifying holders of non-rechargeable prepaid cards would now be lowered from EUR 250 to EUR 150 per month. E-money online transactions with prepaid cards would be limited to EUR 50.
7. Going Forward
As a main rule, the proposed amendments are intended to enter into force on 1 January 2019. The Government’s proposal (HE 167/2018 vp) is available here (only in Finnish).
Developments on the European Union stage continue: the lawmaking procedure concerning proposal for a directive which would facilitate the use of financial and other information for the prevention, detection, investigation or prosecution of money laundering, associate predicate offences and terrorist financing is under way. Also further regulations relating to anti-money laundering are projected in the future.
We are happy to discuss the implications of the proposed legislation as well as keep you updated on the legislative process. For more information and guidance, please contact the Head of our Corporate Advisory, Compliance & CSR practice group, Hanna-Mari Manninen.