EU Imposes New AML Rules on Fintechs Amid Scam Surge

The Council of the European Union has formally adopted a comprehensive package of new anti-money laundering (AML) and countering the financing of terrorism (CFT) rules. The regulations introduce stricter measures for the financial sector, notably extending their reach to cover the entire crypto-asset sector and other high-risk entities in an effort to combat rising financial crime and close existing loopholes across the bloc.

On May 30, 2024, the Council of the EU gave its final approval to a sweeping legislative package designed to strengthen the Union’s AML/CFT framework. The new laws create a unified “single rulebook” for all member states and establish a new European Anti-Money Laundering Authority (AMLA). According to the Council, these measures will ensure that perpetrators of illicit financial activities will have much less room to manoeuvre.  The package expands the list of obliged entities, forcing crypto-asset service providers (CASPs), traders of luxury goods, and high-level football clubs and agents to adhere to stricter due diligence and reporting standards.

The newly adopted framework introduces several significant changes aimed at creating a more consistent and robust defense against illicit finance. The measures are designed to harmonize regulations that were previously fragmented across the 27 member states.

• New Central Authority (AMLA): The package establishes the Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA), which will be based in Frankfurt. AMLA will have direct and indirect supervisory powers over high-risk obliged entities and will be central to enforcing the single rulebook.
• Expanded Scope for Crypto: All Crypto-Asset Service Providers (CASPs) will be required to conduct customer due diligence. According to reports, this will apply to transactions amounting to €1,000 or more and will require CASPs to verify the identity of their customers.
• EU-Wide Cash Payment Limit: An EU-wide maximum limit of €10,000 has been set for cash payments, making it more difficult to launder large sums of money through anonymous cash transactions. Member states will retain the option to impose a lower maximum limit.
• Beneficial Ownership Rules: The regulations introduce more detailed and harmonized rules on beneficial ownership. Information on who ultimately owns or controls a legal entity will be registered centrally and made accessible to authorities and persons with a legitimate interest, such as journalists and civil society organisations.

The legislative overhaul is a direct response to the perceived need for a stronger, more unified approach to tackling financial crime within the EU’s single market. In its announcement, the Council stated the new rules were necessary to address the risks associated with new technologies and to prevent criminals from exploiting differences between national legal systems. The inclusion of the crypto sector is a specific reaction to its growth and the potential for digital assets to be used for illicit purposes, including sanctions evasion and financing terrorism.

While the legal framework has been adopted, several operational details remain to be finalized. The exact timeline for when the new Anti-Money Laundering Authority (AMLA) will be fully staffed and assume all its supervisory responsibilities is still being established. Furthermore, the specific compliance costs and technological burdens for smaller fintech startups and crypto-asset service providers have not yet been fully detailed. It also remains to be seen how consistently the new rules will be enforced across all 27 member states, despite the creation of the single rulebook.

The new laws will now be published in the EU’s Official Journal and will subsequently enter into force. The new AML directive will need to be transposed into national law by member states, while the regulation will be directly applicable across the EU. The establishment of AMLA in Frankfurt will proceed, with the authority expected to begin its operations in mid-2025. Financial institutions, particularly those in the crypto and fintech sectors, will need to begin preparing their compliance systems to meet the more stringent requirements within the specified transition periods.

For businesses and individuals operating within the EU financial system, the new rules will necessitate changes in compliance and transaction habits.

• Fintechs and CASPs: Companies in these sectors should immediately begin reviewing and upgrading their AML/CFT compliance frameworks to align with the EU’s single rulebook and prepare for enhanced customer due diligence obligations.
• Luxury Goods Traders: Businesses dealing in high-value goods like jewellery, cars, and art must implement verification and reporting procedures, as they are now considered obliged entities.
• Consumers and Investors: Individuals using crypto services should be prepared for more rigorous identity verification processes. Anyone making large cash purchases above €10,000 will need to use alternative, traceable payment methods.

Follow us on Bluesky , LinkedIn , and X to Get Instant Updates