There has been published a speech given by the Vice-President of the Financial Action Task Force (FATF), Je-Yoon Shin. The speech is entitled Current FATF agenda and priorities and was given at the 2nd Annual Japanese Regulatory Summit.
In his speech Mr Shin discusses FATF’s current agenda and priorities. In addressing this theme Mr Shin covers:
- the global regulatory arena;
- the risk-based approach;
- the FATF’s mutual evaluation process; and
- FATF’s action on terrorist financing.
Mr Shin highlights that the most recent update of the FATF Recommendations emphasises the risk-based approach much more than previous versions of the FATF standards. He adds that the risk-based approach is “central to the effective implementation of the FATF Recommendations”. Mr Shin also notes that recently the FATF issued a guidance document for a risk-based approach applicable to the banking sector. This document provides operational suggestions to assist banking regulators in integrating this “risk-based” philosophy into day-to-day supervision. It should also help banks strengthen their internal risk assessments, as well as their due diligence process and risk mitigation controls. It will help a common understanding of the risk-based approach between supervisory authorities and banks.
Mr Shin also discusses “de-risking”. This is basically a situation when a financial institution terminates, or restricts, business relationships with clients, or categories of clients, to avoid, rather than manage, risk in line with the FATF’s risk-based approach. Mr Shin mentions that de-risking should never be an excuse for a bank to avoid implementing a risk-based approach, in line with the FATF standards. The FATF Recommendations only require financial institutions to terminate customer relationships, on a case-by-case basis, where the money laundering and terrorist financing risks cannot be mitigated. Mr Shin explains that what is not in line with the FATF standards is the wholesale cutting loose of entire classes of customer, without taking into account, seriously and comprehensively, their level of risk or risk mitigation measures for individual customers within a particular sector.
Mr Shin therefore states that the risk based approach should be the cornerstone of an effective anti-money laundering / counter the financing of terrorism system, and is essential to properly manage risks. The FATF expects financial institutions to identify, assess and understand their money laundering and terrorist financing risks and take commensurate measures in order to mitigate them. This does not imply a “zero failure” approach.
View Current FATF agenda and priorities, 10 March 2015