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AMLD5 vs AMLD6 Explained: What Obliged Entities in Cyprus Must Implement

Table of Contents

  1. Introduction
  2. Understanding AMLD5: Key Requirements
  3. AMLD6: Raising the Bar for AML Compliance
  4. Cyprus Regulatory Context and Supervisory Bodies
  5. Industry Challenges in Transitioning from AMLD5 to AMLD6
  6. Practical Guidance for Obliged Entities in Cyprus
  7. Supervisory Expectations and Case Examples
  8. Conclusion
  9. References

Introduction

Category: AML & Compliance

The past 10 years have witnessed thorough reforms against money laundering and terrorist financing in the European Union. AMLD5 and AMLD6 are two milestone moments in this phase of evolution.

For Cyprus obliged entities consisting of CIFs, CASPs, auditors, accountants, and lawyers, the sixth AML Defintion has meant that the things that were priority in AMLD5 have shifted towards enhanced standards in customer due diligence, increased responsibilities of senior management, and more harmonized enforcement practices among Member States within the European Union.

This article explains the difference between AMLD5 and AML6 and how Cyprus regulators enforce the Directives. It also gives practical advice to compliance officers, who are now to make adjustments to the new regime.

Understanding AMLD5: Key Requirements

AMLD5 was adopted in 2018 to bring in a bit more of transparency and accountability in the financial sector, building on the previous directives. The key provisions comprised the following:

• Beneficial Ownership Transparency
The member must have registers of UBOs of corporate entities and trusts in place.

• Wider Scope of Obliged Entities
AMLD5 extended the AML obligations to new sectors, including VASPs, but they are called CASPs in Cyprus.

• Stronger Cooperation Between FIUs
FIUs were endowed with stronger powers to obtain and share intelligence across borders.

• Prepaid Cards and High-Risk Countries
Tighter regulations were put on prepaid cards, with striking due diligence on parties and transactions potentially coming from high-risk third countries.

AMLD5 provisions got transposed in national law in Cyprus by way of an amendment to the Prevention and Suppression of Money Laundering and Terrorist Financing Law (AML Law), thereby laying direct obligations upon CIFs, CASPs, banks, and other professionals.

AMLD6: Raising the Bar for AML Compliance

While AMLD5 focused on transparency and scope, AMLD6—which came into force in December 2020—imposed even stiffer requirements. Its objective was to bring about larger uniformity in provisions and the manner of enforcing AML rules in the EU.

Expanded Definition of Money Laundering

AMLD6 expanded the definition of money laundering offenses, extending liability to include aiding and abetting, inciting, and attempting to commit a money laundering offense.

Corporate Liability and Senior Management Accountability

For the first time, organizations could be held criminally liable for breaches of AML regulations. Senior management would be directly liable where the compliance framework was found to be inadequate.

Harmonized EU Sanctions

The Sixth Directives made sanctions harsher and uniform throughout the member states, including longer terms of imprisonment and higher criminal fines.

Hence, these provisions have raised the stakes for the obliged entities of Cyprus, requiring much more than mere compliance with procedures. Instead, they stressed a culture of accountability and active risk management.

Cyprus Regulatory Context and Supervisory Bodies

In Cyprus, the following regulators oversee the implementation of AMLD5 and AMLD6:

  • CySEC (Cyprus Securities and Exchange Commission): Oversees CIFs, CASPs, and collective investment funds. Issuing several circulars that interpret the provisions of AMLD5/6.
  • Bank of Cyprus (CBC): Regulates credit institutions and payment firms. Lately, it has placed emphasis on EDD over high-risk countries under AMLD6.
  • CPAC (Institute of Certified Public Accountants of Cyprus): Regulates accountants and auditors, ensuring the application of AMLD5/6 obligations, including those concerning beneficial ownership checks.
  • Cyprus Bar Association (CBA): Regulates lawyers, with a great focus on UBO registers and cross-border transaction monitoring.

Each body has by now enforced the transition from AMLD5 to AMLD6 through enforcement actions and training requirements.

Industry Challenges in Transitioning from AMLD5 to AMLD6

Transitioning from AMLD5 to AMLD6 is an arduous task for the Cyprus entities obliged. Some key pain points are:

1. Complex Beneficial Ownership Verification Procedures
Firms - many times draw blank in trying to get accurate details of UBOs-and this is mostly about offshore structures.

2. Senior Management's Accountability
Boards and senior management must show active oversight and not simply delegate these responsibilities to a compliance officer.

3. Anti-corruption Cross-border Harmonization
Firms working across various EU markets must adhere to divergent national implementations of AMLD6.

4. Lack of Training and Culture
Many small companies are not in a position to provide training for inculcating AMLD6 obligations throughout the organization.

Practical Guidance for Obliged Entities in Cyprus

To navigate AMLD6 effectively, firms in Cyprus should focus on four key areas

Customer Due Diligence

  • Classification of clients by risk and the application of a proportionate due diligence.
  • Use of advanced verification during onboarding.
  • Enhanced checks should be applied to PEPs and clients from high-risk countries.

Beneficial Ownership Registers

  • Ensure that UBO data is submitted on time and correctly.
  • Table cross-check beneficial ownership information from all external databases.
  • Keep records updated and accessible to supervisors.

Enhanced Cooperation and Information Sharing

  • Instituting procedures for rapid response to FIU requests.
  • Collaborate with correspondent banks and foreign partners in transnational cases.
  • Monitor regulatory updates from FATF and MONEYVAL to foresee changes.

Training and Firm-Wide Implementation

  • Train staff at all levels of an organization, including senior management, on AMLD6 obligations.
  • Clearly document the framework of compliance for supervisory inspection.
  • Implement procedures within enterprise risk management systems relating to AMLD6 requirements.

Supervisory Expectations and Case Examples

Lately, some supervisory actions taken in Cyprus underscore the gravity of AMLD6 implementation:

Case Example 1- CIF Fined by CySEC
A CIF used AMLD5 outdated measures, acting with disregard regarding enhanced due diligence of UBOs.
Lesson: Firms must immediately upgrade their systems to abide by AMLD6 standards.

Case Example 2- CASP Under Investigation
The crypto firm was fined for failure to check cross-border transactions properly.
Lesson: CASPs must improve their monitoring tools and come in line with FATF's risk-based approach.

Case Example 3- Accounting Firm Reviewed by ICPAC
Auditors did not carry out the verification of the beneficial ownership registers accurately.
Lesson: ICPAC holds accountants responsible for the verification of UBO data as a core component of compliance.

Conclusion

The transition from AMLD5 to AMLD6 essentially marks a paradigm shift in AML compliance for Cypriot obliged entities. Firms should now shift accountability, harmonization, and proactive monitoring within itself. This is what the supervisory expectations dictate.

Compliance officers, AML officers, lawyers, and auditors cannot simply carry out AMLD5 activities anymore; AMLD6 needs updated frameworks, additional levels of verification, and stronger senior management scrutiny.

Centre 8’s AMLD5 vs AMLD6 Compliance Training will give Cyprus firms a practical guide, case studies, and regulatory insights so as to bridge the gap between directives and supervisory expectations. Enroll today to protect your firm against penalties and reputational risks.

References

1. AMLD5 – eur-lex.europa.eu
2. AMLD6 – eur-lex.europa.eu
3. FATF Recommendations – fatf-gafi.org
4. CySEC Circulars – cysec.gov.cy
5. Central Bank of Cyprus AML – centralbank.cy
6. ICPAC AML Directives – icpac.org.cy
7. Cyprus Bar Association AML – cba.org.cy
8. MONEYVAL Reports – coe.int/moneyval