The private banking sector is undergoing a transformative phase, and this is impacting which wealth and private banking hubs high-net-worth individuals (HNWIs) are opting for.
The private banking sector has been undergoing intense regulatory scrutiny, influenced by global initiatives aimed at preventing tax evasion, money laundering, and financial crime. The established frameworks of the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) had set the foundation, but new regulations are emerging that are reshaping how private banks operate and serve (HNWIs).
The changing private banking regulatory landscape
A significant development is the European Union’s 6th Anti-Money Laundering Directive (6AMLD), which expands the scope of existing legislation, and the breadth of criminal liability, harmonizes criminal law across the EU and promotes cooperation between member states. It also compels private banks to implement sophisticated transaction monitoring systems and enhance their due diligence processes. Additionally, the Financial Action Task Force (FATF) has intensified its focus on beneficial ownership transparency, leading to more intricate evaluations of corporate structures for private banking clients.
For private bankers, these regulatory changes are not just compliance challenges; they also represent opportunities for them to enhance their current operational efficiency. A deep understanding of these regulations can serve as a competitive advantage for private banks that want to position themselves as leaders in the wealth and private banking sphere.
The EU Anti-Money Laundering Directives (AMLDs) have developed over the years to counteract increasingly sophisticated financial crimes.
- The First AMLD was adopted in 1991, targeting primarily the banking and financial sectors, marking the EU’s initial legislative stance against money laundering.
- The Second AMLD came in 2001, expanding requirements to non-financial businesses and professions, including lawyers and accountants.
- In 2005, the Third AMLD aligned EU rules with the FATF’s (Financial Action Task Force) recommendations, incorporating a risk-based approach and widening the scope to include sectors like real estate and high-value goods.
- The Fourth AMLD, adopted in 2015, introduced significant changes, including mandatory beneficial ownership registers and strengthened customer due diligence standards.
- The Fifth AMLD, adopted in 2018 and entering into force in 2020, addressed emerging risks such as virtual assets, requiring cryptocurrency exchanges and wallet providers to comply with AML rules.
- The Sixth AMLD, published in 2024, extends AML obligations, empowers the new EU anti-money laundering authority, AMLA, and mandates member states to regulate high-risk sectors more strictly, including golden visa programs and certain virtual assets.
This progressive tightening underscores the EU’s commitment to staying ahead of evolving financial crime challenges across member states.
