EMA Amendments 4MLD. The EMA s proposed amendments to the draft 4 th Money Laundering Directive. 25 September 2013

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1 The EMA s proposed amendments to the draft 4 th Money Laundering Directive 25 September 2013 Comments, questions should be addressed to: Dr. Thaer Sabri, Chief Executive,The Electronic Money Association Tel: ; thaer.sabri@e-ma.org Or Philip Robinson, Senior Adviser, Electronic Money Association Tel: ; philip.robinson@e-ma.org Page 1 of 16

2 4MLD Simplified due diligence - option 1 Amendment 1 Proposal for the introduction of a definition of simplified customer due diligence Article 3 new subparagraph 3MLD text Text proposed by the Commission Amendment proposed by the EMA simplified customer due diligence means the application of reduced customer due diligence measures that must, as a minimum, include ongoing monitoring of the business relationship. Without the clarification that simplified due diligence does not necessarily require an element of identification (but must, at all times, include the monitoring of the business relationship), the postponement of customer due diligence for e-money products beneath certain thresholds (see amendment 2 below) would be of reduced value. While the FATF Recommendations do include a prohibition on keeping anonymous accounts where there is a business relationship, this is not a new provision and until now the e-money thresholds have provided an explicit exemption from it. The rationale for this exemption is that the one-off or occasional use of many e-money products makes it difficult to determine when a business relationship comes into being. The thresholds provide a Page 2 of 16

3 convenient cut-off point in this respect. Amendment 2 Proposal for the re-introduction of e- money SDD provisions New article 16 3MLD text Text proposed by the Commission Amendment proposed by the EMA By way of derogation from Articles 7(a), (b) and (d), 8 and 9(1), Member States may allow the institutions and persons covered by this Directive not to apply customer due diligence in respect of: (d) electronic money, as defined in point 2 of Article 2 of Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic -- Notwithstanding articles 13 to 15, and by way of derogation from Articles 10(a), (b) and (f), 11(2) and 12(1), Member States may allow the institutions and persons covered by this Directive to apply simplified customer due diligence in respect of electronic money, as defined in point 2 of Article 2 of Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions, where, if it is not possible to recharge, the maximum amount stored electronically in the device is no more than EUR 250, or where, if it is possible to recharge, a limit of EUR is imposed on the total amount transacted in a calendar year, except when an amount of EUR or more is Page 3 of 16

4 money institutions where, if it is not possible to recharge, the maximum amount stored electronically in the device is no more than EUR 250, or where, if it is possible to recharge, a limit of EUR is imposed on the total amount transacted in a calendar year, except when an amount of EUR or more is redeemed in that same calendar year upon the electronic money holder s request in accordance with Article 11 of Directive 2009/110/EC. As regards national payment transactions, Member States or their competent authorities may increase the amount of EUR 250 referred to in this point to a ceiling of EUR 500. redeemed in that same calendar year upon the electronic money holder s request in accordance with Article11 of Directive 2009/110/EC. As regards national payment transactions, Member States or their competent authorities may increase the amount of EUR 250 referred to in this point to a ceiling of EUR 500. The threshold would allow due diligence to be postponed until the customer has used the product to an extent that justifies undertaking due diligence both from the perspective of risk and the cost of undertaking CDD. Without thresholds, the cost of undertaking CDD at the outset is prohibitive given the narrow profit margins and occasional use of e-money products. Note: As a compromise position, the EUR 2,500 turnover limit for reloadable devices may be reduced to EUR 2,000, and a prohibition on redemption in Page 4 of 16

5 cash or onto a non-verified payment instrument for both reloadable and non-reloadable devices operating under the SDD provisions may be introduced. 4MLD Simplified due diligence - option 2 Amendment 1 Proposal for the exclusion of e-money below certain thresholds from the requirement to apply customer due diligence Article 10 new subparagraphs b and d 3MLD text Text proposed by the Commission Amendment proposed by the EMA Page 5 of 16

6 -- -- (b) notwithstanding Article 10(a), for institutions and persons covered by this Directive, when establishing a business relationship in respect of electronic money, as defined in point 2 of Article 2 of Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions, used through a rechargeable device, where more than EUR is transacted in a calendar year, or where an amount of EUR or more is redeemed in that same calendar year upon the electronic money holder s request in accordance with Article 11 of Directive 2009/110/EC; (c) notwithstanding Article 10(c), for institutions and persons covered by this Directive, when carrying out occasional transactions in respect of electronic money, as defined in point 2 of Article 2 of Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions, used through a non-rechargeable device, where the maximum amount stored electronically in the device exceeds EUR 250, whether the transaction is carried out in a single operation or in several operations which appear to be linked. As regards national payment transactions, Member States or their competent authorities may increase the amount of EUR 250 referred to in this Page 6 of 16 point to a ceiling of EUR 500;

7 This option to introduce the e-money thresholds earlier in the directive, effectively excluding such e-money products from the requirement to apply customer due diligence, would avoid the need to introduce a definition of simplified due diligence. Note: As a compromise position, the EUR 2,500 turnover limit for reloadable devices may be reduced to EUR 2,000, and a prohibition on redemption in cash or onto a non-verified payment instrument for both reloadable and non-reloadable devices operating under the SDD provisions may be introduced. Page 7 of 16

8 Wire Transfer Regulation Amendment 1 Proposal to extend the scope exclusion to prepaid cards and vouchers Article 3 paragraph 2 Wire Transfer Regulation text Text proposed by the Commission Amendment proposed by the EMA This Regulation shall not apply to transfers of funds carried out using a credit or debit card, [...] This Regulation shall not apply to transfers of funds carried out using a credit or debit card, [...] This Regulation shall not apply to transfers of funds carried out using a credit, or debit or prepaid card or voucher, [...] The extension assures equal treatment of prepaid cards and vouchers to credit and debit cards, as envisaged by FATF Recommendation 16. Page 8 of 16

9 Amendment 2 Proposal for the re-introduction of the e- money exemption Article 3 new paragraph 4 Wire Transfer Regulation text Text proposed by the Commission Amendment proposed by the EMA Where a Member State chooses to apply the derogation set out in Article 11(d) of Directive 2005/60/EC, this Regulation shall not apply to transfers of funds using electronic money covered by that derogation, except where the amount transferred exceeds EUR This Regulation shall not apply to transfer of funds using electronic money subject to the conditions in Article [insert article that exempts e-money products beneath certain thresholds from full customer due diligence] of Directive [insert reference to 4MLD], except where the amount transferred exceeds EUR The re-introduction of the e-money exemption would align the new Wire Transfer Regulation with the e-money SDD provisions in 4MLD. Page 9 of 16

10 Amendment 3 Proposal for the clarification of the status of accounted e-money products Article 4 paragraph 5 Wire Transfer Regulation text However, without prejudice to Article 7(c) of Directive 2005/60/EC, in the case of transfers of funds not made from an account, the payment service provider of the payer shall verify the information on the payer only where the amount exceeds EUR 1 000, unless the transaction is carried out in several operations that appear to be linked and together exceed EUR Text proposed by the Commission However, by way of derogation from paragraph 3, in the case of transfers of funds not made from an account, the payment service provider of the payer shall not verify the information referred to in paragraph 1 if the amount does not exceed EUR and it does not appear to be linked to other transfers of funds which, together with the transfer in question, exceed EUR Amendment proposed by the EMA However, by way of derogation from paragraph 3, in the case of transfers of funds not made from an account, the payment service provider of the payer shall not verify the information referred to in paragraph 1 if the amount does not exceed EUR and it does not appear to be linked to other transfers of funds which, together with the transfer in question, exceed EUR For the avoidance of doubt, e-money purses that do not involve the establishment of a business relationship do not qualify as an account in this respect. This clarifies that there may be some e-money products which do involve an account in the technical sense, without, however, offering features Page 10 of 16

11 commonly associated with an account to their customers. Therefore, a business relationship would not be created. These products should be included in the exemption. 4MLD Passporting Amendment 1 Proposal for the clarification of the reporting requirement Article 32 paragraph 2 3MLD text Text proposed by the Commission Amendment proposed by the EMA The information referred to in paragraph 1 shall be forwarded to the FIU of the Member State in whose territory the institution or person forwarding the information is situated. The person or persons designated in accordance with the procedures provided for in Article 34 shall normally forward the information. The information referred to in paragraph 1 of this Article shall be forwarded to the FIU of the Member State in whose territory the institution or person forwarding the information is situated. The person or persons designated in accordance with the The information referred to in paragraph 1 of this Article shall be forwarded to the FIU of the Member State in whose territory the institution or person forwarding the information is situated obliged entity is established. The person or persons designated in accordance with the procedures provided for in Article 8(4) shall forward the information. Page 11 of 16

12 procedures provided for in Article 8(4) shall forward the information. Suspicious activity should be reported only to the FIU of the home or branch member state. Together with the varying expectations of law enforcement agencies of what should be reported, and the different language requirements, a local reporting requirement would result in a significant increase of the compliance burden. Amendment 2 Proposal for the clarification of the application of home/host member state requirements Article 45 paragraph 4 3MLD text Text proposed by the Commission Amendment proposed by the EMA -- Member States shall ensure that obliged entities that operate branches or subsidiaries in other Member States respect the national provisions of that other Member States shall ensure that obliged entities that operate provide their services through branches or subsidiaries in other Member States respect the national provisions of that other Member State pertaining to this Directive. Obliged entities operating under the freedom to provide services principle shall only be subject to the Page 12 of 16

13 Member State pertaining to this Directive. provisions and risk assessment of the Member State where they are established pertaining to this Directive. The application of host member state obligations and risk assessments to firms passporting on a cross-border services basis with no physical presence will lead to the erosion of the single market and make the iterative extension of any e-money product proposition to new member states cost prohibitive. This proposed amendment clarifies that cross-border business is not impacted by the provision. Amendment 3 Proposal for the introduction of a definition of establishment Article 3 new subparagraph 3MLD text Text proposed by the Commission Amendment proposed by the EMA establishment has the meaning given to it in Articles of the Treaty on European Union. For the avoidance of doubt, the activity of electronic money distribution does not give rise to an establishment; Page 13 of 16

14 The definition clarifies the meaning of establishment, and assures that e-money distributors are not treated as established. It is the issuer who has oversight of the use of the product, including the activity at distribution points and the usage of the product at end merchants. The issuer is regulated and required by its home member state to comply with AML law, which includes the reporting of any suspicious activity at distributor level. It is therefore entirely disproportionate to regulate distributors when the same information is already available from the regulated issuer itself. Amendment 4 Proposal for an amendment to the requirement to appoint a central contact point Article 42 paragraph 8 and 9 3MLD text Text proposed by the Commission Amendment proposed by the EMA -- Member States may require issuers of electronic money as defined by Directive 2009/110/EC of the European Parliament and of the Council and payment providers as defined by Directive Option 1: Deletion of the entire article. Option 2: Member States may require issuers of electronic money as defined by Directive 2009/110/EC of the European Parliament and of the Page 14 of 16

15 2007/64/EC of the European Parliament and of the Council established on their territory, and whose head office is situated in another Member State or outside the Union, to appoint a central contact point in their territory to oversee the compliance with antimoney laundering and terrorist financing rules. 9. EBA, EIOPA and ESMA shall develop draft regulatory technical standards on the criteria for determining the circumstances when the appointment of a central contact point pursuant to paragraph 8 above is appropriate, and what the functions of central contact points should be. EBA, ESMA and EIOPA shall submit these draft regulatory technical standards to the Commission Council and payment providers as defined by Directive 2007/64/EC of the European Parliament and of the Council established who are providing services on their territory, whether by way of establishment or under the freedom to provide services, and whose head office is situated in another Member State or outside the Union, to appoint a central contact point in their territory to oversee the compliance with anti- money laundering and terrorist financing rules. 9. EBA, EIOPA and ESMA shall develop draft regulatory technical standards on the criteria for determining the circumstances when the appointment of a central contact point pursuant to paragraph 8 above is appropriate, and what the functions of central contact points should be. EBA, ESMA and EIOPA shall submit these draft regulatory technical standards to the Commission within two years of the date of entry into force of this Directive. Page 15 of 16

16 within two years of the date of entry into force of this Directive. The cost of requiring a local point of contact in each member state where an issuer distributes products physically will be prohibitive, and will discourage iterative growth across member states. It would be better to require such contact point to be appointed within the issuer s business, enabling a convenient point of engagement, but without adding to cost unnecessarily. Page 16 of 16