On 25 October 2018, the Financial Action Task Force (FATF) published the final version of their guidance for a risk-based approach (RBA) for the securities sector (the Guidance). The RBA is key for businesses to understand the money laundering and terrorist financing (ML/TF) risks to which they are exposed; the Guidance offers specific advice for securities providers and supervisors to implement the RBA approach.

The Guidance is aimed at countries and their competent authorities including anti money laundering / counter terrorist financing (AML/CTF) supervisors; and practitioners in the securities sector.

Section I of the Guidance offers an overview of the FATF’s RBA generally, and presents examples of securities transaction structures that may expose risk with regards ML/TF. Section II, which should be read alongside the FATF Report on Money Laundering and Terrorist Financing in the Securities Sector (October 2009), offers guidance for securities providers and intermediaries. Risk assessment guidance is provided covering:

  • country / geographic risk;
  • customer / investor risk;
  • product / service / transactions risk; and
  • distribution channel risk.

Risk mitigation techniques are also provided including advanced due diligence methods, a high level summary of which is provided on page 30 of the Guidance. Comprehensive advice is also provided on internal monitoring and compliance controls.

Section III offers guidance for supervisory authorities. The FATF recommends that more supervisory resources be allocated to areas of higher ML/TF risk. Examples of ways to do this include:

  • performing additional enhanced checks, as appropriate, as part of their authorisation function;
  • adjusting the type of AML/CTF supervision (i.e. on and off site supervision); and
  • adjusting the frequency and intensity of AML/CTF supervision.

The Guidance continues by offering supervisors a general approach to the supervision of the RBA to the securities sector, with supporting documents on how certain countries have implemented the RBA in the securities sector provided in Annex A to the Guidance.