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As an inter-governmental body established by more than 200 countries and jurisdictions, the Financial Action Task Force is the top international standard-setter in the space of anti-money laundering. At present, FATF Member Countries account for about 85% of global GDP and 59% of the global population.

The Ministers of the FATF country members hold a biennial meeting to set the strategic objectives for the subsequent two years. The meeting inaugurating the 2022-2024 chapter took place in Washington D.C. on 21 April 2022.

Ahead of the gathering, the FATF released an important Report on the State of Effectiveness and Compliance with the FATF Standard, capturing the current state of the global efforts to tackle money laundering, terrorist and proliferation financing. The study is part of the Strategic Review, which began in 2019 to streamline the FATF’s processes and make the next round of mutual evaluations timelier, more risk-based and effective. 

Key Take-Aways

Overall, the new report finds that countries have dramatically improved technical compliance by establishing and enacting a broad range of anti-money laundering laws and regulations. Progress achieved has created a firm legislative basis for national authorities to ‘follow the money’ that fuels crime and terrorism. 

To this day, the FATF’s series of forty recommendations – first issued in 1990 and later revised in 2012 – remain its most important guidance to local governments. According to the new report, 76% of countries now satisfactorily follow the Recommendations.  This figure represents a sharp increase from 2012, when the percentage was 36%. 

As well as celebrating progress, the FATF’s report also highlights areas for improvement. In fact, many countries still face challenges in taking effective action to improve risk mitigation efforts. These include difficulties in investigating and prosecuting high-profile cross-border cases and preventing anonymous shell companies or trusts from being used for illicit purposes. 

Related to shell companies, the report focuses particular attention on the topic of beneficial ownership and transparency. Members have agreed on tougher global rules for beneficial ownership of legal persons (Recommendation 24), requiring countries to have a beneficial ownership registry or an equivalent system in place. Such registries will help trace the assets of criminals and terrorists, and prevent tax evasion.

Following the current fourth round of mutual evaluations, the watchdog has now made several changes to how it will assess countries’ actions in its upcoming fifth round. Key changes to be expected include: 

  1. A significantly shorter mutual evaluation cycle, so that countries get assessed more frequently;
  2. Greater emphasis upon major risk factors and context to ensure that countries prioritise the areas with the highest risks, in line with the risk-based approach principle;
  3. A structured follow-up assessment process focusing on specific actions to tackle money laundering, terrorism financing, and the funding of weapons of mass destruction.

Implications for the Global Financial System

It appears that the on-going trends toward stricter, shorter evaluation cycles and more frequently updated anti-money laundering regulations will continue to develop in the coming years.  

We are likely to witness a further harmonisation towards standard – and stringent – AML requirements across multiple jurisdictions in the coming months and years. Laggards will be strongly encouraged to catch up and introduce risk-based frameworks in line with the FATF recommendations. 

Moreover, the current growth of the RegTech sector will accelerate even further, boosted by the expansion of KYC/AML requirements to new jurisdictions and sectors.

How RegTech can help

Fostering a RegTech-friendly environment is local regulators’ best strategy to ensure that the private sector can efficiently and effectively implement new AML requirements to meet FATF’s guidance.

Supported by expert RegTech vendors, financial institutions and regulated organisations can seamlessly translate written compliance policies into step-by-step digital procedures. This approach doesn’t simply strengthen all lines of defence against dirty money, but also improves the customer experience for the end-user.

At Know Your Customer, we have built a cloud-based, modular solution that transforms AML compliance, making it easier to meet changing regulations across multiple jurisdictions.

With our award-winning technology, you can:

  • Easily map UBO charts across multiple jurisdictions
  • Integrate on-going AML monitoring for always-on compliance
  • Refresh KYB cases automatically to ensure data accuracy
  • Upload back book of clients from multiple sources to centralise and automate due diligence reviews
  • Be always audit-ready with automated KYC reports for regulatory reporting 

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    Last updated on April 23rd, 2023 at 07:22 pm

    Claus Christensen

    Claus Christensen is the CEO & Co-Founder of Know Your Customer. His vast array of previous experiences includes founding a technology company that develops email server infrastructure products for 60,000+ global customers and serving as VP Electronics at Thielert Aircraft Engines. A regular contributor to leading industry publications and a recognised expert in the anti-money laundering and financial regulation space, Claus is also the host of the RegTalks podcast and a senior lecturer of the Centre for Finance, Technology and Entrepreneurship (CFTE)’s RegTech Course.