Financial inclusion and financial integrity Challenges and opportunities

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1 FINANCIAL ACTION TASK FORCE GROUPE D ACTION FINANCIÈRE Financial inclusion and financial integrity Challenges and opportunities UPU Global Forum on Financial inclusion for Development, 24 October

2 About the FATF Task Force created in 1989 Intergovernmental body - Global network Development and promotion of measures and policies to protect the integrity of the global financial system FATF mandate ( ): Set standards to combat money laundering (ML), the financing of terrorism (FT) and the proliferation of weapons of mass destruction Assess compliance with the FATF standards Identify and respond to threats to the integrity of the international financial system: high-risk jurisdictions and typologies studies 2

3 The FATF Standards Set out the legal and institutional framework to build an effective system for combating ML and FT Introduce minimum requirements that countries should implement in the fight against ML and FT Create obligations for financial institutions and non financial businesses and professions (eg. casinos, lawyers, trusts and company services providers etc) Revised in

4 FATF Standards Key requirements Set of preventive measures Customer Due Diligence (CDD) Record-keeping requirements Suspicious Transaction Reporting (STRs) Measures to ensure the transparency of corporate vehicles Requirements regarding the relevant powers and responsibilities of competent authorities Provisions to organise international cooperation 4

5 Financial integrity and financial inclusion An overly aggressive approach to AML/CFT safeguards can lead to: disproportionate costs of AML/CFT compliance with regard to the expected return the exclusion of legitimate businesses and consumers from the formal financial system 5

6 Financial integrity and financial inclusion Financial exclusion represents a real risk to achieving effective implementation of the AML/CFT Recommendations AML/CFT and financial inclusion pursue mutually supportive objectives: more citizens using formal financial services increases the reach and the effectiveness of AML/CFT regimes Financial inclusion is a major challenge for a number of countries in the FATF global network 6

7 FATF and financial inclusion FATF Standards offer some flexibility enabling jurisdictions to craft appropriate AML/CFT measures: General application of a Risk-Based Approach (RBA): risk management and mitigation measures tailored to the nature of the risks Low risk sectors and activities may be exempted restrictive conditions Lower risk scenarios may benefit from simplified AML/CFT measures Newly banked people cannot be classified as lower/lower risks solely on the basis that they are low-income clients risk assessment 7

8 FATF and financial inclusion Examples of lower risk scenarios include financial inclusion products Entry-level products with limited functionalities (ex. caps on overall value, frequency of use, size and types of transactions) Provided to support access to formal financial services 8

9 FATF and financial inclusion Examples of simplified measures: Verification of identity: broad range of acceptable methods of verification; can be postponed until a defined transaction threshold is reached Nature of the business relationship: can be inferred from the type of account or transactions Reduced degree of ongoing monitoring, based on a reasonable threshold 9

10 FATF and financial inclusion Examples of simplified measures: Verification of identity: broad range of acceptable methods of verification; can be postponed until a defined transaction threshold is reached Nature of the business relationship: can be inferred from the type of account or transactions Reduced degree of ongoing monitoring, based on a reasonable monetary threshold 10

11 Postal financial inclusion from an AML/CFT perspective Some opportunities: Proximity network and KYC measures Tiered CDD approach on financial inclusion products Some challenges: Legal framework and scope of AML/CFT regime Awareness-raising and capacity building of staff AML/CFT policies and measures based on risk assessment (clients, products, delivery channels, geographic context etc) 11

12 FATF Guidance 12

13 FINANCIAL ACTION TASK FORCE GROUPE D ACTION FINANCIÈRE For more information: 13