TF Risks Must Be Addressed: Experts Warn of Need for Robust Framework
A comprehensive legal and regulatory framework is crucial to address the risks associated with terrorist financing (TF) and money laundering (ML), according to experts. In this article, we will explore the importance of a risk-based approach, effective supervision, and financial inclusion in mitigating these risks.
Risk-Based Approach Crucial
A risk-based approach (RBA) is essential for effective Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) controls. This approach acknowledges that not all banks will adopt identical measures, and a single isolated incident does not necessarily invalidate a bank’s overall AML/CFT controls.
- Understands that a flexible RBA does not exempt banks from applying effective controls
- Recognizes that not all banks are created equal, and different approaches may be necessary
Supervision Key to Success
Effective supervision is critical for achieving a level playing field between all banking service providers and preventing higher-risk activities from shifting to institutions with inadequate supervision.
- Allocates resources to areas of higher ML/TF risk
- Ensures access to relevant information to determine a bank’s risk profile
Financial Inclusion a Key Consideration
Financial exclusion does not automatically equate to low or lower ML/TF risk, and financial inclusion can contribute to greater transparency and traceability of financial flows.
- A RBA may help foster financial inclusion by allowing for exemptions in the application of FATF Recommendations based on proven low risks
- Financial inclusion is a key consideration in mitigating TF risks
Experts Warn of Need for Robust Framework
The need for a robust framework is underscored by experts, who highlight the importance of ongoing communication between competent authorities and banks to ensure the successful implementation of an RBA.
- The risk-based approach must be accompanied by effective supervision and guidance from competent authorities
- Prevents financial exclusion and promotes financial inclusion
Additional Resources Available
Supervisors may consult additional resources, such as:
- European Supervisory Authorities’ preliminary report on anti-money laundering and counter-financing of terrorism risk-based supervision
- Basel Committee on Banking Supervision’s guidelines on sound management of risks related to money laundering and financing of terrorism
These resources provide guidance on implementing an RBA and ensuring effective AML/CFT controls.
Conclusion
Experts emphasize that a comprehensive legal and regulatory framework, combined with a robust risk-based approach, is essential for addressing TF risks and promoting financial inclusion. By understanding the importance of supervision, financial inclusion, and ongoing communication, we can work towards mitigating these risks and promoting a safer financial system.