FATF Tightens Focus on High-Risk Jurisdictions, Eases Burden on Low-Capacity Nations
The Financial Action Task Force (FATF) is a global Anti Money Laundering/Counter Financing of Terrorism and Counter-Proliferation Financing (AML/CFT and CPF) trendsetter. Its primary objectives are to promote the spreading of the AML spirit worldwide, track the implementation of the FATF Recommendations, and review AML/CFT and CPF trends and Money Laundering, Terrorism Financing, and Proliferation Financing (ML/FT & PF) mitigation measures.
The FATF isn’t empowered to impose fines and penalties against countries that function contrary to such assessment parameters. However, the FATF identifies countries and jurisdictions that have strategic deficiencies in their AML/CFT and CPF regime by publishing two watchlists thrice annually.
These watchlists are known as:
- “High Risk Jurisdictions Subject to a Call for Action” often referred to as “FATF blacklist”
- “Jurisdictions under Increased Monitoring” often referred to as “FATF Grey list”
The International Cooperation Review Group (ICRG) by FATF identifies and reviews grey-listed countries through a mutual evaluation process.
The FATF published “Procedures: For the FATF AML/CFT/CPF Mutual Evaluations, Follow-Up and ICRG,” which sets forth the procedures on basis of which the mutual evaluation process, follow-up, and ICRG process takes place.
The latest update to these procedures makes way risk focused grey listing approach by:
- Increasing the Observation Period for Least Developed Countries (LDCs) from 12 months to two years to update the ICRG assessment body on their progress during review.
- Giving more time to address deficiencies prior to being listed
- LDCs with limited financial sectors will not be listed if they do not pose substantial ML/FT & PF risks.
- Prioritising the assessment of regulatory shortcomings in higher-income countries and large financial sector jurisdictions, as their deficiencies pose a substantial threat to the international financial system.
These updated procedures help level the playing field when it comes to ICRG review, which determines whether a jurisdiction must be placed on the grey list.
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