Last week, the Mexican presidency of the Financial Action Task Force (FATF) secured one of its key objectives, leading the FATF to adopt a revised version of its guidance on anti-money laundering and combating the financing of terrorism (AML/CFT) and financial inclusion at its plenary meeting in Strasbourg. Several other updates came out of the meeting, with implications for financial inclusion work.
Let’s start with defining financial inclusion. The financial inclusion community has long recognized that financial access without meaningful usage is pointless. CGAP has been arguing even further that usage without meaningful customer outcomes falls short of real financial inclusion. Previously, FATF’s definition focused only on access, and that narrow approach, it was argued, also undermined its own integrity objectives, especially in relation to dormant or under-utilized accounts. FATF responded by adopting a new definition where “…financial inclusion refers to both access to and active use of an adequate suite of regulated, appropriate, safe, convenient and affordable financial services…” clarifying that “appropriate” means that the financial services “are tailored to the customer needs and delivered transparently and fairly.”
When considering the proportionality of AML/CFT measures, the new definition now prompts policymakers to consider their impact on access and usage. For instance, restrictive tiered KYC that only improves access, but limits the quality of financial services and therefore their usage may need to be reconsidered.
The Guidance also considers financial exclusion risk, importantly stating that “[f]inancial exclusion not only harms individuals and businesses, but can also represent a real risk to achieving effective implementation of FATF Standards by driving financial activity into unregulated channels.” FATF guidance in 2011 stated that “financial exclusion is an ML/TF risk” but that has not been a consistent FATF view. The revised Guidance therefore helps remind FATF assessors when conducting mutual evaluations of country compliance with the Standards of the positions that the FATF has adopted for some time.
Additionally, the Guidance reinforces the view that inclusion and integrity policy objectives are complementary — a then-novel proposition adopted by the Dutch FATF presidency in 2009. The new Guidance states: “The risks of financial exclusion on these grounds are mitigated through financial inclusion measures that increase reliance on regulated, registered or licensed financial services, ultimately strengthening the integrity of the financial system.”
The Guidance furthermore develops the concept of proportionality set in Recommendation 1 (and the related interpretative note) as a cornerstone of the risk-based approach. Applying a “one size fits all” approach that does not correspond to specific identified ML/TF risks is called “inconsistent with an RBA (risk-based approach).” As a best practice, the Guidance also advises that “where two or more measures would both effectively mitigate ML/TF risks, the least burdensome option, having regard to financial inclusion, would typically be the most appropriate option.” This recognition of the “least burdensome option” approach can help limit unintended negative consequences associated with overly burdensome measures.
Among other changes in the revised version, the Guidance now covers in greater detail the role of supervisors in helping ensure a proportional, inclusion-sensitive risk-based approach. The Guidance also advises on the design of appropriate national and institutional risk assessments that would identify financial exclusion risks and the best options for countering them through appropriate financial inclusion measures. Importantly, the Guidance includes a rich set of new examples of inclusion-friendly measures implemented by authorities around the world.
In the language of film critics, we could say that overall, the Guidance scores high and will be well received by the audience. At over 140 pages, the Guidance covers many important areas of relevance to national authorities, financial service providers, and financial inclusion experts – the result of an inclusive and collaborative process. Indeed, FATF has extensively consulted on the draft both through targeted outreach (e.g., surveying authorities and providers to collect the examples), public written consultation (with hundreds of pages of comments received), and expert engagement at the 2025 FATF Private Sector Collaborative Forum in Mumbai. This consultative and collaborative approach will hopefully become a hallmark of FATF. Most importantly, the Guidance reflects well the new knowledge about the interplay between integrity and financial inclusion, especially in the context of fast-evolving digital financial services.
However, not all news from Strasbourg last week was entirely favourable. The FATF plenary also adopted the revised Recommendation 16 for international money transfers, with some of our concerns (see the blog post series) unaddressed. The FATF has been responsive to financial inclusion submissions. For example, it addressed our concerns regarding the exclusionary impact of the initial client identification proposals. While the identification requirements now provide for persons who lack formal government identities or formal residential address data, identity verification barriers may persist. We also remain concerned about the impracticality of the USD/EUR 1,000 de minimis rule that allows for lower identification and verification requirements for lower value payments. Large banks are not applying this exemption to cross-border transactions due to regulatory fragmentation caused by the rule’s design. We hoped for improvements to the standard to address these matters, but the FATF now aims to address these through upcoming non-binding guidance.
Notably, the plenary decision not to extend the card payments exemption to instant payments is of concern. While instant payments are becoming a driving force of financial inclusion (not least because they put digital money on par with cash in terms of speed and convenience), the exemption that imposes a lower burden on providers when payments for goods and services are involved, favors card payments. The FATF delegations were clearly concerned with the novelty of fast payments, and the speed and irrevocability of transactions, but also with unknown risks. Before long, this matter may be at FATF’s table again as the fast payment systems evolve and with them our understanding of related risks.
In the coming weeks, as more plenary documents are published, we will share our further views.
