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This workshop overview by Timothy Goodrick from FATF discusses the relationship between AML/CFT measures and financial inclusion, emphasizing the importance of adopting a risk-based approach. The presentation highlights how the FATF standards aim to protect the global financial system while addressing the risks associated with financial exclusion. It also touches on the FATF response to ensuring a balance between regulatory safeguards and promoting financial inclusion. The presentation delves into the implementation of AML/CFT standards, the ongoing work related to mutual evaluations, and the necessary guidance for providers of money or value transfer services. Overall, the workshop underscores the significance of understanding and managing risks effectively in the realm of AML/CFT and financial inclusion.
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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
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
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
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.
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
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)
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.
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
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