AML/CFT & Financial Inclusion

1. ITU Workshop on “Digital Financial Services and Financial Inclusion” (Geneva, Switzerland, 4 December 2014) AML/CFT & Financial Inclusion Timothy Goodrick, Policy Analyst, Financial Action Task Force (FATF) timothy.goodrick@fatf-gafi.org

2. Overview • Financial Action Task Force (FATF) • Relationship between AML/CFT & financial inclusion • FATF Response • Financial Inclusion & the risk-based approach • Implementation of the standards • Ongoing work

3. Financial Action Task Force (FATF) • Inter-governmental policy-making body: • Members: 34 countries + 2 organisations • 8 FATF-style regional bodies (FSRBs) • Sets the international standards for anti-money laundering, counter-terrorist financing (AML/CFT) and combating proliferation financing • Core activities: • Standard setting (FATF 40 Recommendations) • Assessing compliance • Identify and respond to threats: high risk jurisdictions and typology studies • Over 190 countries have endorsed the FATF Standards

4. AML/CFT & Financial Inclusion • Protecting the integrity of the global financial system requires that the largest possible range of transactions falls within the AML/CFT system. • Financial Exclusion can increase the ML/TF risks • e.g. excluded people use unregulated financial channels, creating a disguise for illicit funds.

5. AML/CFT & Financial Inclusion • An overly cautious approach to AML/CFT safeguards can lead to: • The exclusion of legitimate businesses and consumers from the formal financial system • Disproportionate costs of AML/CFT compliance with regard to the expected return

6. FATF Response • FATF Recommendations support the risk-based approach (RBA). • Methodology considers financial inclusion through risk & effectiveness • FATF has issued Guidance on: • Financial inclusion (2013) • New Payment Products & Services (2013) • RBA Guidance for banking sector (2014) • FATF statement on risk-based approach: case-by-case, not wholesale de-risking (October 2014)

7. Risk-based approach (RBA) • FATF Recommendations require countries to understand risks and apply a RBA, including simplified measures where the risks are lower • Financial inclusion measures can be used in low-risk situations (or as part of a strategy to reduce the risks) • However, there needs to be balance-risks must be understood by countries and institutions: • Risk can be increased by disproportionate measures to encourage inclusion. • Newly banked people cannot be classified as lower risks solely on the basis that they are low-income clients.

8. Implementation of the standards • FATF 4th round of mutual evaluations • First reports to be published in 2014 • Focus on effectiveness • FATF mutual evaluations may address financial inclusion on a case by case basis • Financial exclusion may be a risk factor that should be taken into account

9. Ongoing work • Mutual Evaluations – undertaken by the FATF & the FATF-regional style bodies • Training of assessors – includes financial inclusion module • Guidance for providers of money or value transfer services (MVTS) – to be revised in 2015-16