FATF Adopts Guidance on Bank Customer Due Diligence

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November 20, 2017

At its November 2017 plenary session the Financial Action Task Force (FATF) approved two documents relevant to nonprofit financial access concerns. First FATF adopted a customer due diligence supplement to its 2013 FATF Guidance Anti-Money Laundering and Terrorist Financing Measures and Financial Inclusion. These are combined in one document.  While focused on individuals/natural persons rather than nonprofit organizations (NPOs), the new guidance is relevant in that it demonstrates FATF’s commitment to financial inclusion and provides some indication of how the risk-based approach (RBA) can be applied to increase access to the regulated financial system. At some point in the future, a similar document focused on NPOs would be useful for all stakeholders. Second, FATF published a short statement supporting technical innovation in financial services that is consistent with its standards. 

The Customer Due Diligence supplement states that its objective is “to encourage countries to implement the FATF Recommendations and the RBA in a way that responds to the need to bring the financially excluded into the regulated financial sector…” It includes a number of short case studies of steps countries have taken to encourage financial inclusion, but goes out of its way to note that these measures are examples only and have not yet been subjected to scrutiny in an FATF evaluation.

The supplement notes the importance of context in designing customer due diligence measures, saying “Proportionate, risk-based AML/CFT controls may be applied to products and services intended to support financial inclusion, based on the nature and on the level of assessed ML/TF risks associated to these products or services.” It goes on to note that countries (and banks) can allow flexibility with accounts based on risk, using the national risk assessment (NRA) and taking a “holistic approach” that considers not only inherent risk associated with the services offered but also the profile of the underserved population targeted.

Risk mitigation measures can also be used to promote financial inclusion. FATF says “Incentives to financial inclusion are only acceptable in so far as this approach includes appropriate measures to mitigate the risks.” Some approaches described that could be adapted to the nonprofit context include:

  • Tiered customer due diligence approaches: “Financial inclusion objectives have led a number of countries to design a so-called ‘progressive’ or ‘tiered’ CDD approach. Clients have access to a range of different account functionalities….” The criteria for the tiered approach “are highly dependent on the national context” and should be based on findings in the NRA, which countries should communicate to financial institutions.
  • Limited/restricted product services: Limits on what services are provided to account holders can “limit the attractiveness of the relevant products and services to criminal abuse,” and risk mitigation measures could apply.  Examples of this approach include limits on the total value of transactions and/or their frequency.

The supplement goes into extensive detail on customer identification and verification criteria, noting that “The FATF Recommendations do not establish any specific requirements regarding the identification data to be collected or how identity should be verified.” While customer due diligence for NPOs differs from individual accounts, these examples have some utility for NPOs in 1) establishing a standard of flexibility in how customer identification is done, and 2) providing examples of ways financial institutions can identify or verify board members and key employees of NPOs. The supplement also sets out ways that technology can be used in this context.