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AML and KYC regulations in Europe: How YouVerify assists key industries

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The financial landscape of Europe has been undergoing significant changes with a renewed focus on anti-money laundering (AML) and Know Your Customer (KYC) regulations. Companies operating in the single market of the EU, particularly those in fintech and online gambling, as well as banks, are impacted and face important responsibilities. 

Now, Youverify, a leading RegTech firm, announced that it is making available more resources and support to help EU companies benefit from its well developed solutions. 

These changes are prompted by the shocking estimate that globally, over $2 trillion is laundered annually, with two prominent European countries collectively processing over €100 billion in illicit funds. This sum is approximately half of the amount laundered in the United States. Given that this issue shows no signs of abating in the near future, a multitude of laws have been enacted throughout the financial service industry to make criminal activities more challenging.

Current AML/KYC landscape in the European Union

In recent years, the AML/KYC landscape in the European Union (EU) has undergone considerable changes. With the realization that the union is rife with money laundering, the government has been making efforts to clean up the sector. Directive 2019/1153, which all EU member states were required to adopt by August 2021, was one of the latest changes implemented.

Latest policies in the EU

Directive (EU) 2019/1153 was initiated in 2018 to add to the legal framework concerning money laundering in the EU. The directive has several aims, including facilitating the exchange of information with Europol, giving Financial Intelligence Units (FIUs) access to law enforcement information, and facilitating access to financial/bank account information by law enforcement and anti-corruption authorities. The goal is to enable the free and fast transfer of information between all relevant authorities, thus accelerating money laundering investigations.

Other key directives and regulations governing money laundering in the EU include:

  • Payments Services Directive (PSD2): This directive secures electronic payments by requiring customers to undergo Secure Customer Authentication (SCA). This two-factor authentication is now the norm in the EU and applies to all high-risk and high-value payments, establishing the identity of each consumer and reducing the risk of fraud.
  • General Data Protection Regulation (GDPR): This regulation governs the use of customer data, ensuring that customer safety and privacy are not sacrificed in the name of AML. One of its rules is the Right to be Forgotten, which means customers can request that their data be removed.
  • Financial Action Task Force (FATF) Recommendations: These create the framework for KYC and AML regulations, including guidelines relating to due diligence and promoting transparency in the financial services industry.
  • Customer Due Diligence (CDD): This involves checking blacklists and grey lists for criminal behavior. These checks should be conducted on all customers using publicly available information.
  • Enhanced Due Diligence (EDD): This is essential for high-risk customers and requires a more diligent approach, such as investigating the source of funds and monitoring transactions closely.

In 2022, the EU also announced the creation of a new Anti-Money Laundering Authority (AMLA), which would oversee FIUs and assist with the launch and implementation of new AML regulations.

Importance of these regulations

KYC regulations are used to confirm the identity of an individual, while AML laws are designed to reduce money laundering. These laws are crucial as a significant amount of money laundered in the EU stems from illegal activities such as drug dealing, human trafficking, and black market firearms. This money could then be used to fund terrorism and the general expansion of criminal enterprises.

The importance of AML rules is further heightened in Europe due to the Schengen Agreement, which has effectively abolished borders between many European countries. This makes it easier for criminals to cross national “borders,” taking their money and illegal activities with them. By adopting directives like those discussed above, the EU can give law enforcement the clarity and cohesion they need to operate across member states.

Why it is important to keep up with this information

Although KYC/AML regulations can be frustrating, time-consuming, and expensive for EU companies to deal with, they are vital. They not only protect consumers and companies but also play a major role in hindering large-scale criminal operations. On a more immediate level, failure to abide by these regulations could lead to substantial fines and other serious implications. The AMLA has the authority to impose fines of up to €10 million or 10% of annual turnover, and these fines can be imposed every day until the issue is rectified. GDPR breaches can also lead to substantial fines, with a cap of €20 million or 4% of global turnover for the previous financial year (whichever is highest).

Keeping up with AML/KYC information

The AML/KYC framework is extensive, with many rules to follow and potential pitfalls to avoid. As a company operating within the EU, it is essential to stay on top of these regulations to avoid substantial fines and other serious penalties.

YOUVERIFY in Europe

Youverify, an established firm with a North American and global footprint, has entered the European market to enable compliance, especially in fintech and online gambling/igaming sectors. Youverify is a B2B company that builds SaaS and PaaS compliance products to help businesses establish economic relationships without compliance worries. With over 20 platforms and banks partnered with Youverify and 2000+ clients worldwide, it is a trusted name in the industry.

Companies like Youverify bring exceptional and much needed value to the table in a landscape riddled with complexities and high stakes. In a discussion with Luigi Wewege, the president of a well known private bank and author for Finextra, Gbenga “Gee” Odegbami, the CEO of Youverify emphasized the critical role of robust identity verification solutions in business operations. He noted that such systems serve as the first line of defense by hindering criminals from accessing financial systems using fake or stolen identities. This is not only a requirement of AML regulations but also enables businesses to understand their customers’ transaction behaviors. He explained that by accurately verifying the identities of individuals partaking in financial transactions, businesses can spot any discrepancies from expected behaviors and report any suspicious activities. This, in turn, safeguards their operations and maintains the integrity of the financial system.

Final thoughts

The AML and KYC regulatory landscape in Europe is intricate and ever-evolving. With the establishment of new authorities like AMLA and the continuous implementation of directives, it is imperative for companies operating in the EU to stay informed and compliant. Companies like Youverify are instrumental in aiding businesses to navigate this complex terrain, ultimately contributing to a safer and more transparent financial landscape in Europe.

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