Financial Crime World

FATF Unveils New Guidelines for Effective Risk-Based Supervision

The Financial Action Task Force (FATF) has released new guidance on risk-based supervision aimed at combating money laundering and terrorist financing.

Two Core Issues Under Scrutiny

  • Identifying and Understanding ML/TF Risks: The FATF highlights the importance of identifying and maintaining an understanding of money laundering and terrorist financing (ML/TF) risks across various sectors and institutions.
  • Risk-Sensitive Supervision: Ensuring supervisors monitor compliance with anti-money laundering and combating the financing of terrorism (AML/CFT) requirements on a risk-sensitive basis is crucial.

Other Key Aspects

  • Clear Guidance and Education: Clear guidance, education, and outreach strategies are essential to promote a clear understanding of AML/CFT obligations and ML/TF risks.
  • Risk-Based Market-Entry Requirements: Market-entry requirements should apply in a risk-based manner, taking into account different types of ownership and potential risks.
  • Dissuasive Sanctions: Dissuasive, proportionate, and effective sanctions are necessary for non-compliance.
  • Supervisors’ Impact on Compliance: Supervisors should demonstrate their impact on compliance by entities.

Common Supervisory Frameworks

  • Global Approaches: The FATF notes that various supervisory frameworks are used globally, including single AML/CFT supervisors, integrated supervision, and decentralized models. While the guidance does not prescribe a specific framework, effective communication and coordination between authorities are essential for an overall effective risk-based approach.

Characteristics of Effective Risk-Based Supervision

  • Ongoing Risk Assessment: An effective risk-based supervisory framework should identify, assess, and mitigate ML/TF risks effectively on an ongoing basis.
  • Sound Risk Assessment System: Implementing a sound risk assessment system is crucial for identifying inherent risks and monitoring compliance with AML/CFT requirements.
  • Understanding of ML/TF Risks: Supervisors should develop a good understanding of ML/TF risks at the sectorial and entity levels.

The FATF’s new guidance provides countries with a comprehensive framework for developing effective risk-based supervision systems, ultimately contributing to the global fight against money laundering and terrorist financing.