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Electronic Identification under 5MLD

Electronic Identification under 5MLD

20th May 2019

The Government are currently consulting upon the transposition of the EU’s Fifth Money Laundering Directive (5MLD) into UK legislation, to be implemented in January 2020.

The proposals for electronic identification will be relevant to all firms subject to AML rules. Thus the outcomes of the reliance on electronic identification for customers will be of particular interest to those within firms responsible for customer due diligence.

Customer Due Diligence: Electronic identification

Anti-money laundering rules require that firms identify, and verify the identity, of their customers. Whilst the current rules do not specify how these customer due diligence procedures should be carried, in reality, many firms are increasingly performing these remotely and therefore, electronically.

5MLD now clarifies, to avoid any uncertainty, that the identification of customers may be performed electronically a long as the electronic identification process is one that is accepted by the local regulator.

As the Government consultation states “Nothing in the existing UK regulations precludes the use of electronic means of identification, but the addition of this explicit mention of electronic identification may provide greater clarity for firms”

It should be noted that the Joint Money Laundering Steering Group (JMLSG) who are an authoritative source for the industry when interpreting the AML rules, already suggests best practice for the use of electronic evidence to verify a customer’s identity. Since this guidance is approved by HM Treasury, it is thought likely to be sufficient for the purposes of 5MLD, however this is still one of the points to be clarified and confirmed and thus is one of the discussion points within the consultation.

In addition to whether government approved guidance would constitute implicit “recognition, approval or acceptance by a national competent authority” as required under 5MLD, the consultation also raises discussion of the term “secure”.

5MLD specifies that the identification process must be “secure”. Therefore, the Treasury asks whether additional rules or guidance are needed to clarify what “secure” is in the context of considering electronic identification. 

As well as asking whether there are any additional measures that the government might introduce to encourage the use of electronic means of identification, the Treasury also questions whether these changes are likely to encourage firms to make more use of electronic ID? And if so, whether this is likely to lead to savings for financial institutions when compared to traditional customer on-boarding?

Those wishing to have input into the consultation should do so before the closing date of 10 June 2019. After the closing date, the Treasury will then confirm its approach before the 5MLD implementation deadline of 10 January 2020.

Related Reading:

HM Treasury Consultation on the transposition of the Fifth Money Laundering Directive

FCA Board discussed Government Proposed Cryptoassets Regulation

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