New year, new rules: implementation of the 5th Money Laundering Directive

At the end of May 2019, the German Federal Ministry of Finance had already published the draft for a implementation of the 5th Money Laundering Directive, which provided for some surprises. In August 2019, the German Federal Government presented its draft  (see our blog article). On 14 November 2019, the Bundestag passed the draft, and there were again unexpected changes. The draft provided for amendments that largely comply with the provisions of the 5th Money Laundering Directive, but which in part – in keeping with the typical German gold-plating approach – go beyond the European regulatory framework. For the most part, the implementation law concerns changes to the German Anti-Money Laundering Act (“GwG“), but complementary also relevant changes to the German Banking Act (“KWG“).

The so-called gold-plating implementation primarily concerns the regulation of the crypto sector. The main changes for the financial sector are the following:

• Crypto depositories (wallet providers) and crypto exchanges will be regulated under the GwG.
• From now on, investment companies themselves may be subject to money laundering obligations; they may be covered by the (now) independent definition as financial undertakings in the GwG.
• There is a new electronic registration requirement with the Central Financial Transaction Investigation Unit (FIU) for all persons regulated under the GwG.
• The transparency register will be made available to the general public; a legitimate interest is no longer required. In addition, more detailed information can be accessed, such as details of the nationality of a beneficial owner.
• A surprise (since it is not prescribed by the 5th Money Laundering Directive) is the right of information of the beneficial owner himself. This enables the beneficial owner to obtain information about who has accessed which information and when – gold-plating at its best.
• From now on, obligated parties will be required to obtain an extract or proof of registration from the (transparency) register of beneficial owners of the business partner. At the same time, there is a new obligation to report discrepancies between the information provided by the contracting party and the transparency register.
• The due diligence obligations are tightened for transactions involving high-risk third countries (including the Bahamas, Saudi Arabia, Afghanistan and Yemen). From now on, the mere reference of a transaction to a high-risk third country will be sufficient to meet any increased due diligence requirements.

Since the publication of the draft of the new GwG, the regulation of crypto service providers in particular has caused a great stir. From now on, they will be subject to a licensing requirement as financial services institutions. With regard to the future obligation to obtain a licence, the legislator has now (at least) granted a more generous transitional period to those affected. Thus, a licence is considered provisionally granted if the affected entity notifies BaFin by 31 March 2020 of its intention to apply for a licence and submits a complete application for a licence by 30 November 2020.

It was originally intended that the provision of the crypto depository business should be exclusive, so that no other financial services could be provided by the same crypto service provider. This was finally deleted (even after criticism in the Federal Council), so that other financial services can now be offered in addition to the crypto depository business.

The transitional period for the licence as a financial services provider has no effect on the fulfilment of obligations under the GwG. The obligations of organisation and conduct under the GwG must be complied with from the 1 January 2020, even if a licence as a financial services provider does not have to be obtained during the course of 2020. The implementation of money laundering compliance is therefore urgent.