The European Commission’s proposal to expand its anti-money-laundering rules will expand banks’ due-diligence obligations and compliance risks, said a legal expert. Among other changes, the proposal would bring virtual currencies and prepaid cards under its remit, and apply enhanced checks toward high-risk third countries.
Michael Ruck, a financial-services at law firm Pinsent Masons who previously served at the U.K. Financial Conduct Authority, said the beneficial ownership registry that would be established by the rules would be an additional information source to review when banks conduct due-diligence checks. However, it won’t be the only source to check, and those subject to the proposals would have to take a risk-based approach when conducting due diligence, he said. “Flags are likely to rise” when the beneficial owner of an entity is unclear, or “where the beneficial owners reside outside the EU,” he said.
Mr. Ruck said regulators across Europe will be on the prowl for financial institutions that don’t follow the rules once implemented, with the proposal coming amid the ongoing international scandal surrounding the Panama Papers leak. “It will be high on their list of priorities,” he said.