In response to calls from the Financial Action Task Force (FATF), the AFI Financial Integrity Working Group (FINTWG) submitted comments from a financial inclusion policy perspective concerning the implementation of the 40+9 Recommendations. FATF is currently conducting a review of the 40+9 Recommendations to ensure that the propositions remain up-to-date and relevant and to benefit from lessons learnt from implementing and evaluating the current standards. The current review is a focused and balanced exercise, aiming at maintaining the necessary stability in the standards while addressing any deficiencies or loopholes.
FATF is an intergovernmental body responsible for anti-money laundering and combating terrorist financing (AML/CTF) through the setting of international standards and recommendations. At first glance, it appeared that efforts by FATF had the potential to hinder financial inclusion, however, upon further inspection it was clear that financial inclusion and financial integrity can and should complement each other. As FINTWG points out, “finding the right balance between these objectives will be crucial to the effectiveness of implementing such policies.”
With this goal in mind, FINTWG made efforts to draft proposals for FATF’s use in its review process, which resulted in a response outlined in the document Reply to Public Consultation. This document addresses four main areas of FATF policies affecting financial inclusion.
The Risk Based Approach (RBA)
FINTWG members found that the RBA could benefit from greater clarity which is currently lacking in some areas. Specifically, members called for a consolidated statement on Customer Due Diligence (CDD) and examples of high and low risk ML/TF. They further pointed out a number of challenges of implementing the RBA due to structural limitations faced by developing countries. Finally, the FINTWG called for clarification on the time to implement the RBA and examples of risk assessment.
Customer Due Diligence (CDD)
The working group made recommendations about CDD concerning the lack of official identification for many people in developing countries. They called for greater clarity on what alternative forms of identification are acceptable. FINTWG also asked for more information on the risk factors involved concerning products aimed at the poor as not all low income products were low risk.
New Technologies and Non-Face-to-Face Business
Members of the working group urged FATF to take a neutral stance toward emerging technologies and not to assume they are risky. They also asked for greater explanation concerning certain parameters such as: what types of extra information is necessary to access more advanced financial services.
Third Party Reliance
The FINTWG asked for clearer definitions concerning mobile banking, e-money, and agent banking. Concerning agents, the group would like more information on the relationship between agents and regulators. Moreover the working group desired clarity on contracts for outsourced services. There was a further request for coherent definitions of the obligations between agents and financial institutions.
The FATF working group came into existence as a result of challenges faced by policy makers to meet their AML/CFT obligations while promoting financial inclusion. The objectives of the group are to balance financial integrity and financial inclusion by the sharing of knowledge with attention to successful programs already in existence.