The Financial Action Task Force (FATF) recently concluded its June 2024 Plenary in Singapore. This meeting, attended by delegates from over 200 jurisdictions and international organizations, addressed key issues in money laundering, terrorism financing, and proliferation financing. The outcomes of this Plenary are crucial for financial institutions worldwide, particularly in understanding the revisions and updates in the FATF’s methodologies and criteria.
1. Revision of Criteria for Prioritising Countries for ICRG Review Process
The FATF made significant changes to the criteria for prioritizing countries under its International Cooperation Review Group (ICRG) process. This process, often referred to as grey or blacklisting, identifies countries with strategic deficiencies in their anti-money laundering and combating the financing of terrorism (AML/CFT) regimes.
Key Changes: The revised criteria focus on a more risk-based approach and consider the capacity challenges faced by the least developed countries. These changes aim to make the listing process fairer and more transparent. According to the FATF release, the new criteria will ensure that the process is "even more risk-based and cognisant of the capacity challenges faced by the least developed countries."
Implications for Financial Institutions: Financial institutions must stay informed about these changes as they directly impact international cooperation and compliance expectations. Institutions operating in or with countries identified by the ICRG need to adjust their compliance programs to meet the updated standards and avoid potential risks associated with being linked to non-compliant jurisdictions.
2. Methodology Revisions
The FATF has updated its methodology for assessing countries' compliance with its standards. This revision is a crucial step towards enhancing global efforts in asset recovery and international cooperation.
Key Revisions: The new methodology focuses on evaluating how well countries prioritize asset recovery and ensure that authorities can identify and trace criminal property. Countries must demonstrate that they can obtain and enforce confiscation orders to deprive criminals of their proceeds. The FATF noted that the revisions would further "enhance asset recovery and international co-operation frameworks and more effectively deprive criminals of the proceeds of crime."
Impact on Evaluations: These changes will affect the upcoming rounds of mutual evaluations. Countries will need to show tangible results in asset recovery and international cooperation, beyond just having laws and regulations in place. This shift places greater emphasis on the effectiveness of implementation, not just technical compliance.
3. Jurisdictions Under Increased Monitoring and Jurisdictions No Longer Under Increased Monitoring
During the Plenary, the FATF updated its list of jurisdictions under increased monitoring. This list includes countries actively working with the FATF to address strategic deficiencies in their AML/CFT regimes.
Current Status: Monaco and Venezuela have been added to the increased monitoring list. Conversely, Jamaica and Türkiye were removed from the list due to their significant progress in addressing previously identified deficiencies.
Progress and Challenges: The FATF’s statement highlighted that jurisdictions under increased monitoring have committed to swiftly resolving their identified strategic deficiencies. For Jamaica and Türkiye, the FATF acknowledged their ongoing efforts to strengthen their AML/CFT regimes even after being removed from increased monitoring.
Future Prospects: Countries under increased monitoring must continue to work diligently to implement their action plans and meet FATF standards. For financial institutions, it’s essential to stay updated on these changes to manage risk effectively and ensure compliance with international standards.
4. Mutual Evaluation Reports of India and Kuwait
The FATF discussed and adopted the mutual evaluation reports of India and Kuwait, assessing their AML/CFT regimes.
India’s Evaluation: The joint FATF/APG/EAG assessment found that India has achieved a high level of technical compliance with FATF requirements. The report noted that India is effective in areas like understanding ML and TF risks, international cooperation, and using financial intelligence. However, India needs to strengthen supervision in non-financial sectors and address delays in ML and TF prosecutions. The FATF concluded that while India has made significant progress, there are areas that require further improvement.
Kuwait’s Evaluation: The joint FATF-MENAFATF assessment of Kuwait highlighted that the country has an adequate legal and supervisory framework. However, it pointed out serious shortcomings in delivering effective outcomes. Kuwait must enhance its understanding of ML/TF risks, improve TF investigations and prosecutions, and ensure that assets linked to terror or WMD financing can be frozen without delay. The FATF emphasized the need for Kuwait to refine its risk assessment and implement targeted measures to protect the non-profit sector from TF abuse.
Lessons Learned: These evaluations underscore the importance of both having robust legal frameworks and effectively implementing them. Financial institutions in these and other countries must continuously improve their compliance measures to meet evolving standards.
5. Horizontal Review of DNFBP Technical Compliance Related to Corruption
The FATF completed a horizontal review focusing on the technical compliance of Designated Non-Financial Businesses and Professions (DNFBPs) with FATF standards related to corruption.
Scope of the Review: This review examined how well DNFBPs, including accountants, lawyers, and real estate agents, are regulated to prevent their use in money laundering and terrorist financing. The FATF highlighted that when these gatekeepers are not adequately regulated, they pose significant criminal risks and may fail to identify red flags of money laundering.
Key Findings: The review found that many DNFBPs are not fully compliant with FATF standards, exposing them to misuse for financial crimes. The FATF will publish the findings of this review in July 2024, offering detailed insights into the current state of DNFBP compliance and areas needing improvement.
Recommendations: The FATF recommends strengthening the regulatory oversight of DNFBPs to ensure they have the necessary measures in place to detect and prevent financial crimes. This includes more rigorous training, better compliance frameworks, and increased scrutiny from regulatory bodies.
6. Payment Transparency
The FATF is revising its standards to improve payment transparency in response to the evolution of cross-border payment systems and industry standards, such as ISO 20022.
Need for Transparency: Payment transparency is critical in combating money laundering and terrorist financing. The FATF recognizes that the increasing complexity of cross-border payments necessitates more stringent transparency measures. The FATF release states that these revisions aim to "make cross-border payments faster, cheaper, more transparent and more inclusive whilst ensuring AML/CFT compliance."
Proposed Revisions: The proposed amendments to the FATF standards reflect the feedback from extensive public consultations, which concluded in May 2024. These revisions are intended to ensure that the standards remain technology-neutral while enhancing the transparency of payment systems.
Stakeholder Engagement: The FATF emphasizes the importance of continued dialogue with relevant bodies and experts in both the public and private sectors to finalize these amendments. This collaborative approach aims to address the complexities of modern payment systems and ensure effective implementation.
Final Thoughts
The outcomes of the FATF's June 2024 Plenary bring significant changes and enhancements to global AML/CFT efforts. These updates emphasize a more risk-based and transparent approach, with a focus on effective implementation and international cooperation. Financial institutions must stay informed and proactive in their compliance efforts, leveraging innovative solutions like those offered by Tookitaki to navigate the evolving regulatory landscape.
The FATF’s ongoing commitment to improving financial security through rigorous standards and global cooperation highlights the importance of staying ahead in the fight against financial crime. By adopting advanced technologies and fostering collaboration, financial institutions can create a safer and more transparent financial environment worldwide.
