At the end of February the Financial Action Task Force (FATF) held a three-day Plenary session, with delegations of its signatory members developing and outlining a range of new measures and updates to its initiatives.
The outcome of the session provides some valuable insights into how financial laws and regulations look set to develop in the short and medium term, with the meeting being particularly focused on risk-based screening, digitalization and Virtual Asset Service Provider (VASP) regulation.
Specifically, the FATF outlined a series of measures aimed at strengthening and facilitating its ongoing Strategic Initiatives, which include “Improving Risk-based Supervision” and “Mitigating the money laundering and terrorist financing risks of virtual assets”.
Risk-based Guidance Updates
The FATF views the adoption of a Risk-based approach to Anti-Money Laundering (AML) protocols as the most effective way of confronting the global problem.
Compared to a “rules-based approach” that applies uniform measures to all AML screening, including Know Your Customer (KYC) measures, a risk-based approach allows companies, institutions and regulatory bodies to focus resources on areas and transactions that are considered high-risk.
This allows organizations to better manage their compliance responsibilities while providing a more effective and nuanced approach to combating illicit financial activity. As a result of the plenary discussions on upgrading the FATF’s risk-based approach guidelines, the global body released upgraded guidance on March 4, with the aim of further supporting financial institutions, VASPs and regulatory bodies in their adoption of the approach.