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

2. Geneva, Switzerland, 4 December 2014 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. Geneva, Switzerland, 4 December 2014 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. Geneva, Switzerland, 4 December 2014 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. Geneva, Switzerland, 4 December 2014 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. Geneva, Switzerland, 4 December 2014 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. Geneva, Switzerland, 4 December 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. Geneva, Switzerland, 4 December 2014 8 Implementation of the standards FATF 4 th 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. Geneva, Switzerland, 4 December 2014 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