The financial inclusion community has a chance to influence a key document that guides policymakers in balancing integrity and financial inclusion objectives – the Guidance on Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Measures and financial inclusion (the Guidance) issued by the Financial Action Task Force (FATF).
FATF released the revised Guidance for public consultation until April 4, 2025. The revisions are a response to the recently adopted amendments to the FATF standards and an evolving financial landscape marked by technological advancements.
While the revised Guidance introduces several important changes aimed at promoting financial inclusion, it also raises critical questions that should be addressed to ensure that the updated standards support improved financial inclusion. Multiple sections need to be carefully reviewed, and there are specific areas where feedback from the financial inclusion community to FATF could significantly inform the final version of the Guidance – we unpack these below.
Expanded definition of financial inclusion and the need for clarity on financial exclusion risk
An important change in the Guidance is the adoption of an expanded definition of financial inclusion. The draft moves beyond FATF’s original focus on access to financial services to also encompass the usage of appropriate, safe, convenient, and affordable financial products – bringing it closer to CGAP’s impact-focused definition. Active usage supports the FATF’s financial integrity objectives by limiting reliance on cash.
However, the relationship between integrity and financial inclusion is complicated – while FATF supports more inclusion, its standards also require financial exclusion in certain cases, for example, where due diligence cannot be performed satisfactorily or where required by UN sanctions. This complexity needs to be addressed. The Guidance refers several times to “financial exclusion risk” although without explaining what the concept means for the FATF.
For the Guidance to be practical, answers to these questions on exclusion risk will be necessary to ensure that financial exclusion risk is appropriately mitigated, when required.
When is financial exclusion an FATF objective and when does it pose a risk to the implementation of FATF standards? Is the exclusion risk only relevant to countries (impacting national financial inclusion targets) or should it be considered in the risk assessments of regulated institutions (debanking by individual institutions)? How should the exclusion risk be assessed, when required? For the Guidance to be practical, answers to these questions on exclusion risk will be necessary to ensure that financial exclusion risk is appropriately mitigated, when required.
Enhanced focus on proportionality and simplified measures, but insufficient guidance on lower-risk scenarios
The Guidance emphasizes the principle of proportionality, encouraging countries and regulated entities to adopt simplified AML/CFT measures where ML/TF risks are assessed to be lower. Proportionality allows scarce compliance resources to be shifted from lower to higher risks, increasing the effectiveness of AML/CFT measures while reducing the burden on financial institutions and lower-risk customers. Countries and institutions have, however, been reticent to identify lower risks to date, and many AML/CFT frameworks are overly conservative and over-designed.
The Guidance should ideally give countries and financial institutions sufficient confidence to identify lower risks where controls can be simplified, but FATF’s messaging is often unclear. For instance, FATF holds that small transactions pose a terrorist financing risk but do small terrorist financing transactions pose a lower risk than large terrorist financing transactions? Is every terrorist financing transaction likely to result in the most severe consequences? If not, how should that be factored into risk assessments and proportionate control measures?
In 2024, FATF advised that risk occurs when a threat takes advantage of a vulnerability to produce a consequence. Terrorist and proliferation financing (TF/PF) activities can have consequences that are disastrous, but it is unlikely that each transaction will necessarily result in the most disastrous consequences. How should financial institutions assess the likely consequences of any such TF/PF-related transaction that may slip through simplified risk control measures?
Smaller economies often have lower levels of FATF-compliant measures in place, but they often also face lower proceeds of crime and TF/PF risks. How should a large international bank consider the risk profile of such a country and assess its risk profile? FATF has an important opportunity to give clear guidance on factors that it believes may indicate that customers, countries, services, and products pose a lower risk.
Countries and financial institutions also have an important role in strengthening the Guidance by sharing concrete examples of how simplified measures have been successfully implemented in practice. While the draft includes several case studies, there is a need for more examples that illustrate how financial institutions identify lower risks and design simplified due diligence measures. Such examples would help regulators and other financial institutions better understand the range of options that are available when implementing the risk-based approach (RBA) in practice. The consultation provides an important opportunity to share such examples. And if they do not exist that too should be considered a valuable input to FATF to consider further.
Addressing de-risking, but ignoring rule-based measures
The draft Guidance acknowledges that de-risking (also known as “debanking” or “denials of financial services”) negatively affects financial inclusion. De-risking occurs when financial institutions refuse to open, terminate, or restrict financial services to customers instead of assessing and managing risk according to the FATF’s risk-based approach (RBA). De-risking can have severe inclusion consequences for refugees, asylum seekers, low-income individuals, non-profit organizations, and fintechs serving them, and, where correspondent bank relationships are terminated, also for smaller economies. The Guidance emphasizes that de-risking contradicts the RBA and calls for more nuanced risk assessments to ensure that financial services are not unnecessarily denied to those who need them most.
However, the revised Guidance does not clarify how to avoid overly conservative responses to mandatory and rule-based FATF standards, such as Recommendation 16 (R.16) on wire transfers and FATF standards enforcing United Nations Security Council (UNSC) sanctions through TF/PF measures. This omission raises concerns about gaps in regulatory alignment and the potential for over-designing rule-based measures, which could disproportionately affect vulnerable groups. For example, proposed amendments to R.16 that are currently under consideration could negatively impact financial inclusion by requiring senders and receivers of funds to provide identification data that may not be freely available to certain populations, such as town names and dates of birth.
Where feasible, principles of proportionality should inform the development and implementation of rule-based standards and measures. This will prevent over-designed rule-based measures from undermining the broader goals of financial inclusion.
Supervisory review of risk mitigation measures needs clearer guidance
The revised Guidance references the new requirement under Recommendation 1 that supervisors should review the ML/TF risk profiles, risk assessments, and risk mitigation measures undertaken by financial institutions. This is intended to avoid overcompliance resulting from a partial understanding of the risks and to consider proportionality in supervisory engagements. However, the Guidance does not clarify what this review entails, whether it extends to the assessment of those measures, and what supervisors should do if they are not satisfied with the measures they reviewed.
It should further be noted that the review requirement does not explicitly extend to PF risk measures. It is unclear how supervisors should respond to overly conservative PF risk assessments that inform the general customer risk control measures of the institution if PF measures are excluded from the scope of this review obligation. This lack of clarity could lead to inconsistent supervisory practices, with some supervisors potentially overemphasizing compliance at the expense of financial inclusion.
Clearer guidance will help to ensure that supervisory reviews are conducted effectively and consistently. The consultation process provides an opportunity for stakeholders to provide feedback on this issue and offer practical examples of how such supervisory reviews can be conducted in a way that aligns financial integrity measures with financial inclusion objectives.
A significant step forward, but more work is needed
The FATF’s draft Guidance on AML/CFT measures and financial inclusion represents an important step forward in addressing the unintended consequences of AML/CFT measures, particularly de-risking and financial exclusion. The expanded definition of financial inclusion, the enhanced emphasis on proportionality, and the focus on simplified measures in lower-risk scenarios are all positive developments. However, several key questions remain. Notably, clarification of the financial exclusion risk, identification of lower-risk scenarios, and supervisory review of risk mitigation measures are required for the Guidance to become a practical tool for national policymakers and financial institutions.
It is crucial for stakeholders to provide feedback to ensure that the final version of the Guidance effectively aligns the need for financial integrity with the goal of promoting financial inclusion.
As the public consultation process moves forward, it is crucial for stakeholders to provide feedback to ensure that the final version of the Guidance effectively aligns the need for financial integrity with the goal of promoting financial inclusion. Constructive feedback enables the drafters to address concerns and minimize the risk of unnecessary barriers to financial services, particularly for the 1.4 billion financially excluded adults and most vulnerable populations. In a related blog post, we outline the steps you can take to review the Guidance and share feedback with FATF.
