5MLD – What are the key changes in the Fifth Money Laundering Directive?

Her Majesty’s Treasury published a consultation paper on the UK’s transposition efforts relating to the EU’s 5th Money Laundering Directive (5MLD) earlier this year. The Directive will come into force on 10th January 2020 and contains enhancements to the existing provisions as mandated by the EU’s 4th Money Laundering Directive (4MLD) which was implemented in the UK through the Money Laundering Regulations 2017.

With less than 4 months to go, you should be considering how the proposed changes will impact your business and whether your current approach to financial crime risk management is adequate.

The intention of 5MLD is to ensure the existing framework is effective, up-to-date, proportionate and reflective of the current environment. At its most basic level, 5MLD will further help the relevant authorities to counter the threats posed by money laundering and terrorist financing.

5MLD is a minimising piece of legislation, so each member state has enough room to define certain parameters as they consider appropriate.

The following blog details the Consultation Paper, the enhancements that the government has proposed and entails a run-down of the categories that HMT has highlighted in their consultation paper, including how their findings could impact on your business and the key areas you need to consider.

Letting Agents

Letting Agency activities will now be brought within the scope of AML/CTF regime. The threshold for economic activity to trigger the CDD threshold will now be EUR 10,000 per month. Firms will need to be mindful of who exactly is the customer in a letting agent-customer relationship and to conduct CDD accordingly.

CDD must be conducted before the establishment of a business relationship. In relation to letting agents, this is understood to be before the first deposit is paid that exceeds the relevant threshold and, in practice, this will mean that CDD needs to be conducted before the final rental agreement is signed.

An alternative approach may involve the application of CDD measures at the point that the rent exceeds the aforementioned monetary threshold (similar to how the current provisions apply to high value dealers)

Such details have been queried by HMT and we shall await their consultation response.


The risk profile of cryptoassets is ever-changing on account of the pace of its technological advancement and is an attractive option to many consumers but can be subject to abuse (given its pseudo-anonymous nature).

A cryptoasset may be defined as “a digital representation of value that is not issued or guaranteed by a central bank or a public authority”. The FCA has published their own consultation paper outlining the various categories that cryptoassets fall into and whether or not they should be subject to regulation at this time. 

As such, the main concern for HMT in relation to cryptoassets and whether to offer a broad or narrow scope in relation to the definition provided above. The intention is to consult on whether the definition needs to be amended to ensure that all three classifications of cryptoasset – exchange token, security token and utility token – are adequately captured.

Crypto Exchanges and Custodian wallet providers

A cryptoasset exchange is defined as “a provider engaged in exchange services between cryptoassets and fiat currencies”. Meanwhile, a custodian wallet provider may be defined as “an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies”.

There is significant debate at present regarding the measures that should be taken to adequately mitigate the money laundering and/or terrorist financing risk posed by both.

Electronic Money

5MLD limits the conditions by which firms may apply the Article 12 exemption to limited store e-money cards. Recent terrorist attacks have been found to make use of these cards as an effective way of countering surveillance (as well as for funding purposes).

5MLD will lower the existing EUR 250 threshold for identification to EUR 150 in respect of non-reloadable prepaid payment instruments to which CDD measures apply when used face-to-face. More stringent provisions will also apply for prepaid cards used on the internet, so that anonymous use will not be possible online.

This could present a host of implications for firms who will therefore need to limit the functionality of their e-money pre-paid cards as a product offering, as well as forcing firms to reconsider the viability of offering a product that, in terms of convenience and ease, may be limited.

CDD: Electronic identification process

One particular area of the CDD process which has been significantly impacted by technological advancement remains the possibility of conducting electronic verification. New and improving third-party providers continue to come to market, offering a streamlined process to onboard customers using advances in both biometrics and anti-impersonation software.

5MLD sets out the circumstances under which secure, remote or e-verification processes may be taken into account when undertaking CDD.


5MLD also requires obliged entities to carry out enhanced monitoring of any business relationship or transaction involving a high-risk third country. The MLRs currently include a similar requirement, but this is specifically for any business relationship with a person ‘established in’ a high-risk third country.

The wording used in 5MLD instead relates to situations ‘involving’ a high-risk third country.

There has been no clarification as yet as to what would constitute involvement with a high-risk third country. However, in practice, it almost certainly means that all firms that facilitate payments on a global level will be required to review and upgrade their geographic risk assessments.

Mechanisms to report discrepancies in beneficial ownership information

The amendments proposed under the consultation go hand-in-hand with the proposed revamp of Companies House. The current state of play under the Persons of Significant Control (PSC) regime entails that there is a public register which includes details on beneficial owners.  However, in a recent consultation on the revamp of Companies House, it was noted that the register is simply an information gathering tool (i.e. not an investigative one).

As such, there is no verification of beneficial owners listed, nor any reporting mechanism for false information. In order to fully examine the implications for firms in relation to UBO reporting obligations, we will consider it more detail in a follow-up blog.


Firms face significantly less upheaval in operational terms with the introduction of 5MLD than they did for 4MLD. In fact, it would be useful to consider the new legislation more akin to 4.5MLD.

With that said, HMT has made it clear throughout the consultation that, where it can be determined that, where necessary, the UK should go beyond the letter of the 5MLD and the intention is to, particularly in regard to cryptocurrencies and custodian wallet providers.

If you require any advice or guidance on the upcoming transposition of 5MLD and how this impacts your firm, as well as any of your firms’ regulatory obligations, then please do not hesitate to contact me, or any of the team, at fscom.   

Related Posts