AML/CFT and Financial Inclusion
09 September 2014
FATF has made significant progress toward enabling countries to align financial inclusion and financial integrity objectives through risk-based policy making.
Increasing numbers of countries worldwide are putting in place regulatory regimes that allow more poor people to access and use basic formal financial services they need to improve their lives. The Financial Action Task Force (FATF), which sets international standards for anti-money laundering and countering the financing of terrorism (AML/CFT), has taken significant action over the past two years, making it easier for policy makers to pursue financial inclusion goals while combating money laundering, terrorist financing, and other financial crimes.
Current regulatory trends reflect steadily growing awareness among FATF members over the past decade that country-level implementation of FATF’s AML/CFT standards and guidance can inadvertently prevent poor households and businesses from accessing formal financial services (or discourage their use even where there is access). The financial exclusion that results can compromise countries’ ability to track money laundering and terrorist financing by relegating vast numbers of people and transactions to the untraceable world of cash. This culminated in FATF’s formal recognition of financial exclusion as a money laundering and terrorist financing risk as reflected in the FATF Ministers’ approval of the organization’s 2012–2020 mandate. Financial inclusion and AML/CFT are now recognized as mutually supportive and complementary objectives: the application of measures that enable more citizens to use formal financial services will increase the reach and effectiveness of AML/CFT regimes.
This formal recognition coincides with significant FATF actions of relevance to financial inclusion taken in the past two years:
• FATF’s Forty Recommendations on AML/CFT—the body’s highest level normative pronouncements on the subject for countries to follow in crafting their domestic AML/CFT regimes—were revised to introduce the requirement of national and sectoral risk assessments, embedding a “risk-based approach” (RBA) to AML/CFT regulation and supervision, and expanding on the concepts of “lower risk” and “low risk” activities.
• FATF released updated guidance on Anti-Money Laundering and Terrorist Financing Measures and Financial Inclusion produced jointly with the World Bank and the Asia/Pacific Group on Money-Laundering, and new guidance was issued on Prepaid Cards, Mobile Payments and Internet Based Payment Services.
• FATF revised the Assessment Methodology used to assess a country’s compliance with the FATF Recommendations (which are vitally important in determining which countries get added to or removed from public lists FATF maintains of noncompliant jurisdictions), incorporating for the first time assessment of the effectiveness of a given country’s AML/CFT regime, and explicitly including financial exclusion and financial inclusion policies as factors that assessors may consider in their evaluations.
Collectively, these actions clarify the landscape for country-level policy making, offering new opportunities—in some cases, even incentives—for policy makers to adopt inclusion-friendly AML/CFT regimes. This Focus Note provides an overview of the relevant FATF standards and guidance, highlighting the topics that are most relevant for financial inclusion policymaking, including the specific standards and guidance that have changed, and suggesting implications for financial inclusion policymaking.