Coronavirus

FATF statement on the global pandemic and measures to combat illicit financing

By Lisa Lee Lewis (UK) and Weronika Sowa on April 2, 2020 Posted in Coronavirus

On 1 April 2020, the Financial Action Task Force (FATF) published a statement in response to the ongoing COVID-19 pandemic. The statement touched on a number of areas of which the key ones for the financial services industry were:

Remaining vigilant in light of the COVID-19-related financial crime risks: FATF has flagged an increase in financial fraud and exploitation scams targeting innocent victims and vulnerable individuals as well as COVID-19-related insider trading. This is something that has also been recognised by the UK law enforcement agencies, such as the National Crime Agency, as well as the FCA. FATF has called on supervisors, financial intelligence units (FIUs) and law enforcement agencies to continue to share information and cooperate with the private sector to help it prioritise and address the associated ML/TF risks.

FATF has also emphasized that criminals and terrorist may seek to target and exploit weaknesses in firms’ AML/CTF systems and controls, which is why revisiting the existing AML/CTF processes and identifying any potential gaps has never been more important.

Digital onboarding: FATF has emphasized the importance of making adequate use of financial technology for onboarding and customer screening purposes, particularly as the current environment severely restricts face-to-face contact and interaction. To ensure firms make use of trustworthy technology for digital identity purposes, FATF has recently issued a Guidance on Digital ID which highlights the importance of choosing the right tools which facilitate security, privacy and convenience whilst also helping firms in mitigating the ML/TF risks.

This message should provide reassurance to firms that use of technology in the current climate for Customer Due Diligence (CDD) purposes is encouraged if not necessary, as long as such technology is reliable and meets all the legal and regulatory AML/CTF requirements.

Ongoing outreach and advice: FATF has made it clear that it expects supervisors, FIUs and law enforcement authorities to reach out to the private sector with guidance, assistance and support on how AML/CTF laws and regulations should be applied and followed in this challenging environment. To this end FATF, for example, is currently working closely with the Committee on Payment and Market Infrastructures and the World Bank to ensure a streamlined policy on the continued provision of critical payment services.

This should be a welcome communication and we would expect the FCA to issue further communication on this topic in due course.

These announcements set some important pointers to the financial services industry and we expect further communications from the FCA on these specific areas.

We also expect firms will be subject to greater scrutiny by the regulator from the financial crime perspective once things return to normal. The regulator might be interested to know and understand the additional steps firms took to identify and mitigate those particular risks which emerged as a result of the global pandemic and any lessons learned. Therefore, it is important firms continue keeping financial crime as one of their top priorities.