On 27 June 2017, the Joint Committee of the three European Supervisory Authorities (“The ESAs”) – namely the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets authorities – has issued Joint Final Guidelines (the “Guidelines”) under the 4th Anti-Money Laundering Directive (“4AMLD”).

It focuses on customer due diligence and the factors credit and financial institutions should consider when identifying and assessing the money laundering and terrorist financing risk associated with individual business relationships and occasional transactions.

These Guidelines are divided in 3 parts.

• Title I only aims to define the subject and the scope.
• Title II sets out general guidance as it applies to all firms in the scope of the 4AMLD. On the other hand,
• Title III provides with sector-specific directions which are to be read in conjunction with Title II. It aims to encourage the development of a common understanding by European firms and competent authorities of the risk-based approach and its application.

For the purpose of entailing the general context of these Guidelines, this article is focusing on Title II only.

Title II so called “Assessing and managing risk: general” lays out a common set of standards for the purpose of assessing and managing the money laundering or financing terrorism risks associated with business relationship and occasional transaction. From a general perspective, this encompasses:

• Business-wide risk assessments
• Customer due diligences
• Procurement of a holistic view.

With these regards, the Guidelines focus first on a non-exhaustive list of risk factors to be taken into account in order to identify and assess the risk. On this matter, the products, services and transactions type, the customer, geographical areas or delivery channels are key components to the recognition of the risk.

In more details, it provides with the main queries that should be raised in order to identify the risk with relevancy.

The assessment of the risk mainly involves how the weighting of the identified risk factors should be ensured.

The management of such risks then follows with guidance on the performance of appropriate due diligence (namely Simplified or Enhanced Due Diligence) and the various criteria to be considered when deciding whether or not to apply Enhanced Due Diligence. For this purpose, the ESAs took the view of listing the measures to carry out and information to collect when the situation notably involves a Politically Exposed Person (“PEP”), an unusual transaction, a high risk country or correspondent relationship.

For instance, when a PEP is involved in the business relationship or the occasional transaction, enhanced ongoing monitoring may be applied and the source of funds and source of wealth should be established by the firms relying only on reliable independent data.

These Guidelines will become applicable on 26 June 2018. This implies that professionals in scope must now adapt their procedures and processes and train their employees in order to ensure a consistent application of the risk based approach and other AML/CFT measures.

The Guidelines are available under this Link.