The Time to Consult on FATF Revisions Is Now

The Financial Action Task Force (FATF), the body responsible for setting global anti-money laundering and counter-terrorism and proliferation financing (AML/CFT/CPF) standards, has launched a consultation process pivotal for financial inclusion efforts. The Guidance on AML/CFT and Financial Inclusion (referred to as the Guidance) – which has been critical in helping national regulators craft policies that reconcile integrity with financial inclusion — is about to undergo an important update, and the FATF is calling for submissions. 

The Guidance will respond to proposed amendments to the FATF's recently revised standards aimed at deepening a proportionate approach in support of financial inclusion. The changes may have far-reaching consequences for millions of people who currently lack access to essential financial services and affect the financial inclusion landscape for the foreseeable future. Thus, it is imperative that financial inclusion experts participate in this consultation process, considering whether it adequately addresses realities on the ground and serves the purpose of facilitating more inclusive policies and measures. The window to voice concerns and offer suggestions is small, as the consultation period closes on  April 4, 2025.

Financial integrity and  financial inclusion – mutually reinforcing

Financial inclusion is a crucial enabler of economic opportunity. It empowers individuals, small businesses, and communities to access essential services such as savings, payments, credit, and insurance. Yet, despite considerable progress, there are still 1.4 billion people, particularly in low and middle-income countries and among vulnerable groups, who remain excluded from the formal financial system. Many of these individuals and businesses fall victim to strict regulatory measures or overly cautious implementation of the AML/CFT standards. Costs and a lack of documentation are consistently cited among the primary reasons why many in these groups do not have an account. As a result, these segments are either unable to open an account with a financial institution or face disproportionately high costs to access basic financial services. Well-balanced policies and measures could lower these barriers.

Since 2009, the FATF has recognized that the two objectives—integrity (combating ML/TF/PF) and financial inclusion—are not mutually exclusive. Rather, they are mutually reinforcing, and it is through a carefully calibrated risk-based approach that these goals can be achieved simultaneously. Recently, this position was reiterated by Elisa de Anda Madrazo, the current President of FATF, who said that, “[s]ecuring financial integrity is not a trade-off with financial inclusion.”

Finding the right balance is equally important for the financial inclusion and integrity communities. Limited access to formal financial services leads to greater reliance on cash and unregulated channels, increasing ML/TF risks. When legitimate but excluded and underserved populations are forced to rely on informal services, they become more vulnerable to fraud, theft, other proceeds-generating crimes, and other forms of criminal exploitation. Expanding financial inclusion helps fight underlying crime by providing safe, affordable, and reliable financial services to customers who might otherwise have no choice but to use cash or unregulated financial services. This is where revisions of the FATF's Guidance become critical. 

The stakes are incredibly high 

Historically, financial inclusion efforts have often been stymied by the overly-stringent application of AML/CFT measures. For instance, simplified customer due diligence measures have been underutilized. Institutions have been reluctant to apply them due to fears of violating AML/CFT rules and regulations or facing penalties and sanctions from AML/CFT supervisors. This hesitation has led to greater exclusion, particularly for the most vulnerable populations— such as those without access to traditional forms of identification or those operating in informal economies. A significant concern in this context is the widespread practice of de-risking that is happening in many countries, where financial institutions terminate or restrict business relationships with customers to avoid risk, rather than sufficiently understand and manage it, in line with the FATF’s risk-based approach.

With the updated guidance, FATF aims to encourage better use of the risk-based approach. The FATF's president recently said, “Financial integrity is a key dimension of an integrated approach to developing a contemporary and inclusive financial system in which no country is left behind.” This is the spirit with which the FATF seeks to revise the Guidance. 

The revisions provide a chance to explicitly define indicators and examples of lower money laundering and financing of terrorism and proliferation, helping regulators and supervisors to modify the overly cautious or disproportionate AML/CFT measures that lead to undue financial exclusion.

The revisions provide a chance to explicitly define indicators and examples of lower money laundering and financing of terrorism and proliferation, helping regulators and supervisors to modify the overly cautious or disproportionate AML/CFT measures that lead to undue financial exclusion. The revision of the Guidance also provides a chance to highlight and illustrate, through examples, how countries and financial institutions should consider varying levels of ML/TF risks across different financial products, customer segments, and delivery channels, including digital financial services, as well as risk mitigation measures, to ensure that AML/CFT measures remain proportionate to identified risks while supporting financial inclusion.

Financial institutions and the financial inclusion community should review the draft guidance to determine whether it is sufficient to drive a positive change by asking questions such as: 

1. Does it provide sufficient guidance on risk toleration and appropriate indicators and factors to be used to assess money laundering and terrorist and proliferation financing risks as lower or even as low? 
2. Does it guide supervisors and institutions to identify overly cautious compliance responses? 
3. Will the Guidance help regulators adopt effective responses to address undue de-risking? 

In our next blog post, we will take a closer look at what experts can do to contribute to shaping a more inclusive global financial system. Stay tuned!