40 recommendations of FATF – Shaping the future of your business

  • Richard Marley
  • January 16, 2020
  • 6 minutes read
  • 10290

Financial Action Task Force or simply FATF is an active global authority that never fails in surprising the world. It’s always in the process of finding loopholes in AML (Anti Money Laundering) or terrorist financing regulations. 

If you think the FATF recommendations are none of your business then your business might be in a grave situation. Let’s see how. 

History of FATF

FATF was formed in July 1989 by a Group of Seven (G-7) Summit in Paris, initially to examine and develop measures to combat money laundering and drug trafficking. But later, after 9/11 in 2001, the authority also incorporated terrorist financing in its efforts to mitigate the financial crime. Then in 2012, it added efforts to counter the financing of proliferation of weapons of mass destruction.

The primary motives of FATF are to mitigate the crimes that may prove to be a threat to the global financial infrastructure. In an effort to achieve this goal, FATF aims at developing and promoting effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing, and other such threats to a sound financial infrastructure. 

The primary goal behind all these crimes is monetary gain and FATF plans to close all the loopholes in the global financial infrastructure that might be used by criminal entities. So it is significant for governments to take these regulations seriously. Once your government takes FATF seriously, trust me you should be careful too.  

Members of FATF and Affiliated bodies 

FATF has 39 full members and one observer member, Indonesia. Recently Saudi Arabia became a full-time member of FATF after being an observing member for some time. On the other hand, Pakistan and some other countries are thriving to become a member of FATF and remove themselves from blacklist or grey lists of FATF. 

Other than countries, FATF also has some organizations as associate members and observing organizations. 

A brief of 40 recommendations of FATF

1- Identify financial crime threats prevailing in the existing policies and systems of a country. 

2- Draft and implement policies and procedures in the financial infrastructure of the country to counter threats highlighted in the previous stage. The policies should be drafted to prevent crimes such as money laundering, terrorist financing, drug trafficking, and weapon trading. 

3- Design risk preventive measures for financial institutions and other reporting entities to comply with. These preventive measures are designed in agreement with AML and CFT (Counter Financing of Terrorism) recommendations of FATF. These preventive measures include record keeping, transaction monitoring, customer due diligence, AML screening of customers, etc. 

4- The concerned law enforcement entity of the country must be equipped with powers and authority to implement laws and keep an eye on the reporting entities while taking risk prevention measures. 

5- To practice accountability at all levels within a system. To maintain a fair judiciary in the country.

How the recommendations of FATF affect your business

The ultimate entity that is affected by the regulations of FATF is the business community. And among all, the financial sector is the one that is exploited the most by financial criminals. Other industries affected by the recommendations of FATF are, Fintech, E-commerce, legal, precious metal dealers, art dealers, real estate, etc. 

The common AML/CFT regulations implemented on businesses as per the recommendations of FATF are: 

  • Performing due diligence on the customers
  • Performing AML screening on businesses (in B2B relationships)
  • Keeping a record of the customer data
  • Maintaining a compliance department
  • Reporting suspicious transactions of customers to the concerned authorities
  • Performing AML screening on the UBOs (Ultimate Beneficial Owners) in case of serving business as a client

So it is clear that the effect of AML regulations is two-fold. First, the country regulations and policies are drafted in light of these recommendations, then these regulations are implemented on the reporting entities. It might be businesses or government authorities. 

Compliance is not an option 

No matter if you’re a startup or enterprise if your industry is in the list of reporting entities, you must comply with the AML regulations. 

In case some new recommendations are given by FATF, reporting entities are affected by the new changes in their local regulations. For instance, the new regulations of FATF issued in 2019, for the cryptocurrencies, art dealers and legal professionals will affect these businesses in member states and observing members. 

Operating in FATF member country means more growth opportunities

Being a member of FATF is not an easy task. Countries that are referred to as complete members are considered as low-risk countries so the businesses operating in those countries are more likely to have growth opportunities. Businesses and investors prefer low-risk regions for business. 

On the other hand, the companies in grey/blacklist are considered as high-risk entities. So if your country is trying to implement FATF regulations then it will bear high profits for your business once it is a member or out of grey list of FATF. 

FATF regulations are implemented globally  

The AML/CFT regulations of FATF have a global impact. If your business is originated in a non-member state, you’ll be required to follow the stringent AML regulations while operating in a member state. 

As FATF plans to eliminate financial crime at a global level, the scope of its recommendations is also global. So, businesses have no other option but to take concrete steps to prevent financial crime risk. 

How automated AML helps in swift verification of your customers along with quick compliance

Automated AML screening conducted through Artificial Intelligence (AI) is an easy way to get done with stringent AML/CFT regulations. The AML regulations are becoming stringent with every passing day and it is not an easy task to conduct manual verifications on customers coming from every corner of the world. 

On the other hand, now FATF has also issued the first draft of digital ID system guidance so it means the regulatory authority is giving due significance to automated screening solutions. Now is the right time for businesses to avail this opportunity and share their compliance burden. Outsourcing an AML screening solution will share half of your compliance burden.

To wrap up, FATF is in a continuous process of financial crime mitigation in the world. It is expected that more countries will either become members or observing members of FATF to gain credibility in the global trade. It is high time your business should opt for compliance benefits over non-compliance penalties.