UK FinTech firms may have to carry out stringent and targeted checks to make it harder for criminals and terrorists to move money through the country’s financial system.

The fourth EU Money Laundering Directive, enacted approximately two years ago and which comes into force today, will seek to make it much harder for criminals to move funds or hide assets. 

The Economic Secretary to the Treasury in the UK, said in a statement: “We are cracking down on terrorists and criminals funneling money through our financial system.

“Terrorist financing and money laundering are significant threat to our national security, and we are determined to make the UK a hostile environment for illicit finance.

“These new rules will tighten our defences, protect the integrity of our financial system and help protect the British public from terror attacks and criminal activities.”

UK companies will be bound by the new Directive until the country formally departs from the EU.

Paying attention

Nimisha Agarwal, senior associate in the Disputes and Investigations team at Taylor Wessing, explained the Directive did not apply to all businesses.

“It does apply to “financial institutions. As FinTech startups become more innovative and compete with traditional banking services, many of them would be classified as financial institutions, particularly those providing online payment services.

“Startups are asking their advisors to look at their business models to see whether they fall within the scope of the new Directive and, if so, implementing an appropriate customer due diligence (CDD) policy.

“With money laundering being a criminal offence in the UK with heavy penalties, the tech sector is not ignoring this new directive.”

Technical challenges

Luca Primerano, head of strategy at anti-money laundering specialist Fortytwo Data, welcomed the fact that the Directive was coming into force, but expressed his concerns about the challenges ahead. 

“With terrorist attacks on the rise, any legislation that creates a more hostile environment for the funding behind them must be welcomed,” he told Tech City News.

Despite this, Primerano, went on to say that although the new legislation would introduce more stringent due diligence and risk assessment procedures, it could not be relied on to solve illicit money flows once and for all.

“The level of sophistication that today’s terrorist and criminal organisations use to launder their money is frightening, and while the new legislation is a step in the right direction, it will need further strengthening.

“The transactional ecosystems within which criminals hide their funds are so complex and so vast that, manually, they can be near impossible to identify. They are hidden in plain sight,” he added, noting that effective anti-money laundering would require the use of technologies such as big data and machine learning-powered tools. 

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