4MLD record keeping obligations
The EMA spent a good deal of time negotiating the provisions of 4MLD, but concentrated most of its efforts on CDD provisions. It is again focusing on CDD in the amendments to 4MLD which are expected to be published on the 7th of June 2016. This is because CDD is customers’ gateway to new products and services; and unnecessary friction results in abandoned registrations.
It therefore came as a bit of a shock to discover a small change in the wording in the obligation to keep records of transactions in Article 40 4MLD (see below). The current obligation is to keep transaction records for a minimum of 5 years from the date of the transaction; and this has now been amended to 5 years from the end of the business relationship. (Member states can of course exceed this requirement, but few do, and none beyond 10 years).
This change may have also taken the rest of the financial services sector by surprise, at least in the UK.
In effect, the obligation would require a financial institution including banks to keep records of transactions from the beginning of a customer relationship for the entire duration of that relationship, perhaps for 60 years, and then for 5 additional years.
Apart from being disproportionate, it will have significant consequences in relation to data protection, security and the cost of data storage.
The current amendments being drafted to 4MLD, may provide just the opportunity to review this obligation, as long as of course, the concern is shared by others in the regulated sector.
1. Recommendation 11 of the FATF Forty, requires transaction records to be kept for a minimum of 5 years from the date of execution:
“11. Record-keeping: Financial institutions should be required to maintain, for at least five years, all necessary records on transactions, both domestic and international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of criminal activity.”
2. Article 40(1)(b) of 4MLD provides:
“(b) the supporting evidence and records of transactions, consisting of the original documents or copies admissible in judicial proceedings under the applicable national law, which are necessary to identify transactions, for a period of five years after the end of a business relationship with their customer or after the date of an occasional transaction.”
3. Article 30(b) of the current 3MLD provides:
“(b) in the case of business relationships and transactions, the supporting evidence and records, consisting of the original documents or copies admissible in court proceedings under the applicable national legislation for a period of at least five years following the carrying-out of the transactions or the end of the business relationship.”
The article “Slipped unnoticed, 4MLD record keeping obligations” was written by Dr Thaer Sabri, EMA CEO
The article is also published on EMA LinkedIn and twitter.