The real estate industry is set to face tighter regulations with the introduction of the new Anti-Money Laundering Regulation (AMLR). As one of the sectors considered highly vulnerable to money laundering and terrorism financing, real estate businesses in Malta and across the EU will be required to implement enhanced compliance measures.
Real estate sector’s role in the AMLR
AMLR recognises both the vendor and purchaser as ‘customers’ in property transactions. This classification brings with it the requirement to conduct customer due diligence (CDD) to verify identities, sources of funds and beneficial ownership.
The regulation extends to lettings where the monthly rent exceeds €10,000, regardless of the payment method. Importantly, CDD must be carried out after an offer is accepted but before any funds or property are transferred, ensuring that risks are adequately managed early in the transaction process.
For high-value transactions exceeding €5 million, specific enhanced due diligence (EDD) measures will be required, targeting higher-risk scenarios with more stringent checks. One of the key changes for the EU will be the harmonisation of the definition of beneficial ownership across EU member states, reducing the ownership threshold to 15% in high-risk situations. Additionally, the definition of politically exposed persons (PEPs) will be broadened to include siblings of PEPs, recognising their potential influence and risk.
Risk levels: SNRA and Malta’s NRA for real estate
The Supranational Risk Assessment (SNRA) and Malta’s National Risk Assessment (NRA) identify the real estate sector as having a very-high risk for both money laundering and terrorism financing. The main money laundering typologies for the sector include the use of cash in mortgage payments, leasing, renovation costs and laundering money through property transactions.
According to Malta’s NRA, the residual money laundering risk level for real estate is categorised as medium-high, reflecting persistent vulnerabilities despite ongoing compliance efforts.
Real estate agents, notaries and other sector stakeholders must refine their practices continuously
Findings from the FIAU’s 2023 real estate thematic review
The Financial Intelligence Analysis Unit (FIAU) conducted a thematic review in 2023, focusing on the sector’s adherence to anti-money laundering and counter-terrorism financing (AML/CFT) standards.
The review evaluated risk management practices, particularly the application of the risk-based approach (RBA), CDD and measures taken by notaries and real estate agents. A number of areas for improvement emerged from the findings:
• Customer risk assessment (CRA);
• Identification and verification of customers;
• Source of wealth (SOW) and source of funds (SOF);
• Policies and procedures; and
• Politically exposed persons (PEPs).
The path forward
The thematic review highlights the need for real estate professionals to strengthen their AML/CFT frameworks, particularly in high-risk scenarios. Proportionate CDD measures, better-targeted risk assessments and ongoing training are essential to protect the sector from misuse for illicit purposes.
Real estate agents, notaries and other sector stakeholders must refine their practices continuously to meet evolving regulatory expectations and safeguard against money laundering and terrorism financing threats.
The adoption of AMLR will bring significant changes to the real estate sector, emphasising the importance of risk management and compliance. By adapting to these new requirements, the industry can contribute to a more secure and transparent property market.
How can we help?
To help you navigate the new AMLR requirements and address the findings from the FIAU’s thematic review, we offer a comprehensive suite of AML/CFT services. These include gap analysis assessments on existing AML/CFT frameworks, advisory services, updates to policies and procedures and training.
We are also able to aid your staffing needs by providing additional professional experience and resources to your AML/CFT and financial crime teams and drive the necessary change within your teams.
Alex Azzopardi is partner, Advisory Services, KPMG in Malta (alexazzopardi@kpmg.com.mt); Giselle Borg is partner, Advisory Services, KPMG in Malta (giselleborg@kpmg.com.mt); and Deborah Cassar is associate director, AML, Risk Consulting Advisory Services, KPMG in Malta (deborahcassar@kpmg.com.mt).