Promoting the Risk-Based Approach to AML/CFT : Takeaways From FATF's Revised Standards

Our team attended the Financial Action Task Force (FATF)'s insightful training on promoting financial inclusion through the risk-based approach (RBA) to Anti-Money Laundering and Terrorist Financing (AML/CFT) Measures. An international panel of experts explored the recently strengthened FATF Standards on the Risk-Based Approach (Recommendation 1) and updated Guidance on Financial Inclusion, sharing case studies and best practices from across jurisdictions.

Key Revisions to the FATF Standards

The revisions to the FATF Standards include important changes that strengthen the risk-based approach. This includes:

1. Proportionate measures: Measures should be proportionate to the risk identified, rather than commensurate, highlighting that the measure should appropriately correspond to the level of risk identified.

2. Supervisory responsibility: Supervisors must apply the same risk-based principles and ensure subject persons implement obligations proportionately.

3. Encouraging simplified measures: Countries should actively allow and encourage simplified measures in lower-risk scenarios.

4. Differentiation by risk: Subject persons, such as financial institutions, notaries, real estate agents and auditors, should tailor measures according to risk, as opposed to may, strengthening proportional application.

5. Non-face-to-face relationships: Considered higher risk only if appropriate mitigating measures are not implemented, acknowledging the prevalence of non-face-to-face interactions nowadays.

Practical Challenges

The webinar included a participant survey showing common private sector challenges:

• Limited resources to differentiate measures

• Limited understanding or confidence in applying simplified measures

• Fear of penalties

• Need for clearer guidance from supervisors

  
  

These mirror the challenges faced locally, underscoring the importance of clear guidance.

Takeaways

“Over-compliance is not in line with FATF Standards.” Excessive measures do not equal better compliance.

“More where necessary, less where possible.” Sufficient measures should be applied for higher-risk cases, but low-risk transactions should not be overburdened.

“Risk-based execution requires risk-based supervision.” Private sector compliance depends on supervisors applying the same risk-based principles.

Closing Thoughts

The FATF revisions reaffirm that both subject persons and supervisors must confidently apply proportionate measures to ensure legitimate clients are neither excluded nor unduly burdened.

If you’re looking for support in applying proportionate Customer Due Diligence measures for your transactions, reach out to us for guidance.

The content of this article is based on personal views and professional interpretation of information presented in the public FATF webinar. It does not constitute legal, regulatory, or professional advice and should not be relied upon as such.