The FATF has updated its Guidance on Financial Inclusion and Anti-Money Laundering and Terrorist Financing Measures to support countries and the private sector in bringing more people into the formal financial sector through proportionate, risk-based approaches to tackling illicit finance.
The Guidance follows the strengthening of Recommendation 1 of the FATF Standards earlier this year to reinforce the expectation that Anti-Money Laundering, Countering the Financing of Terrorism, and Counter-Proliferation Financing (AML/CFT/CPF) controls must be implemented through a proportionate and risk-based approach, and to encourage countries to promote financial inclusion.
The new guidance highlights that financial inclusion and the fight against financial crime are mutually supportive. Enhanced financial sector transparency and integrity increases the reach and effectiveness of AML/CFT/CPF measures that help keep criminals out of the financial system and facilitate law enforcement investigations.
FATF President, Elisa de Anda Madrazo, said previously: “Bringing more people into the formal financial sector is crucial to our fight against financial crime, as it reduces the size of the black and informal markets where criminals and terrorists hide their operations. But it also addresses a clear injustice in our society. Financial exclusion largely affects people in disadvantaged and vulnerable communities. In the majority of cases, these people are not higher risk but are excluded from financial services due to cost or lack of formal documentation.”
The new guidance has undergone extensive public consultation gathering more than 100 responses, including from civil society, academia and the public and private sectors. It contains practical case studies from around the world.
It focuses on facilitating access to and use of formal services by unserved and underserved persons — including individuals in low-income and rural groups, those in fragile contexts who may lack easy means to verify their identities, and those who are underserved by existing financial products and services.
The Risk-Based Approach (RBA)
FATF expects countries and the private sector to implement AML/CFT/CPF measures through a risk-based approach. Greater recognition of a risk-sensitive approach to implementing AML/CFT measures — including an approach that considers the risks of financial exclusion and the benefits of bringing people into the regulated financial system — is a key step for countries seeking to build more inclusive financial systems.
Risk assessments enable countries and financial institutions to provide appropriate financial services for those that pose low risks and apply enhanced measures for higher risk scenarios.
Best Practices and Practical Examples
The updated FATF Guidance includes examples of how policy-makers, supervisors, the private sector, industry associations and others have implemented the risk-based approach. For example:
In Sweden, the Swedish Bankers Association, in collaboration with the Swedish Migration Agency, designed a process to enable identification of asylum seekers for the purpose of opening a bank account, through confirmation provided by the Swedish Migration Agency through an online process.
In the Netherlands, the Dutch Association of Banks published a risk-based industry baseline on implementing AML/CFT measures for low, neutral, and high-risk scenarios related to EU list of high risk third countries. The baseline defines different risk scenarios and specifies how FIs should approach each scenario with practical use cases, thus helping to take proportionate measures.
In Singapore, the Monetary Authority of Singapore works with retail banks to offer Limited Purpose Banking Accounts to individuals with higher ML/TF risks (e.g. ex-offenders in serious financial crimes). These accounts enable individuals to meet basic banking needs, and are subjected to enhanced monitoring measures to prevent abuse. Banks must document risk assessments and provide clear review processes in case of account closures and rejections.
Updated Assessment Methodology
The FATF has also today published revisions to its assessment methodology to bring it in line with the changes to Recommendation 1.
These revisions reflect a stronger focus on the application of the risk-based approach and will guide assessors in future assessments.
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