Simplified Anti-Money Laundering Measures Can be Applied in Low-Risk Financial Inclusion Products
The global anti-money laundering (AML) and combating the financing of terrorism (CFT) body, FATF, has issued a new guidance allowing countries to apply simplified AML/CFT measures for financial inclusion products with lower risk levels.
Lower Risk Levels Justify Simplified Measures
According to the guidance, there are circumstances where the risk of money laundering or terrorist financing may be lower. In such cases, provided that an adequate analysis of the risk has been conducted by the country or financial institution, it is reasonable for a country to allow its financial institutions to apply simplified Customer Due Diligence (CDD) measures.
Variations in Approaches to Financial Inclusion
Countries have developed various approaches to financial inclusion, including tiered customer due diligence (CDD) and progressive CDD. These approaches aim to balance the need for financial inclusion with the risk of money laundering and terrorist financing.
- Tiered Account Systems: Some countries have introduced tiered account systems, where customers can access different levels of account functionality based on the level of identification and verification conducted by the financial institution.
- Progressive CDD: Another example is China’s bank account management system, which classifies accounts into three categories based on risk levels. Type 1 accounts have full functions, while Type 2 and Type 3 accounts have limited functions and are subject to stricter CDD measures.
Assessment Tools for Risk Levels
The World Bank has developed a tool called the Financial Inclusion Product Risk Assessment Module (FIRM), which assesses the money laundering/terrorist financing risks associated with financial inclusion products. The tool provides an ML/TF risk assessment of the product, and if the assessment shows a lower level of risk, it gives a green light to simplifying AML/CFT requirements.
Importance of Risk Mitigation
The guidance emphasizes that incentives for financial inclusion are only acceptable insofar as they include appropriate measures to mitigate risks. Countries should communicate the results of their national ML/TF risk assessments to financial institutions, which enables them to develop financial inclusion products and services commensurate with national risks and priorities.
Conclusion
Overall, the new guidance provides countries with more flexibility in applying AML/CFT measures for financial inclusion products, while also emphasizing the importance of mitigating risks. By adopting simplified measures for low-risk financial inclusion products, countries can promote financial inclusion while maintaining robust anti-money laundering and combating the financing of terrorism frameworks.