FATF President’s address to the Sub-Saharan Africa Public-Private Sector Dialogue on AML/CFT
Swakopmund, Namibia, 6 September 2013
Distinguished delegates and colleagues,
I am very honoured to be part of this G8 Public-Private Sector Dialogue on AML/CFT. I would like to congratulate the UK’s G8 Presidency, Her Majesty’s Treasury and the US Department of the Treasury, and of course ESAAMLG and Namibia, for their joint initiative. Thank you very much for the invitation.
Dialogue and interaction with the private sector are an increasingly important part of FATF activities. FATF works at a global level with a Private Sector Consultative Forum, and some of the FATF regional bodies hold regular consultations with the private sector. But as far as I am aware, this is the 1st time that such a structured regional AML/CFT dialogue with the private sector takes place in Africa. This will undoubtedly be an interesting experience, and we should learn lessons from this ESAAMLG “premiere”.
FATF Presidency’s overall objectives with regard to private sector engagement
Reinforcing communication and engagement with the private sector, and civil society, is one of the key Objectives for FATF-XXV (2013-2014) of FATF which started in July 2013. Indeed, financial institutions and other private businesses are lead actors in the daily fight against money laundering and terrorist financing.
My objectives in the coming year will therefore be to ensure that private stakeholders are fully aware of the FATF’s work and requirements. They need to be kept informed about current rules and efficient methods, for example to detect and report suspicious transactions or to conduct risk assessments. The implementation of the revised Standards will also require a continuous dialogue and consultation with the private sector. And close cooperation will be needed to formulating new guidance and researching typologies.
I would like to take this opportunity to underline that we need to consider the private sector in its broadest understanding. Of course, it includes financial institutions, and especially banks, which in most markets play the greatest role with regard to AML/CFT. But we should not underestimate the weight and potential role of some of the Designated Non-Financial Businesses and Professions, the so-called DNFBPs, such as lawyers, trust and company service providers, accountants, dealers in precious metals and stones and maybe others as relevant in your own market. If and when required, you should also reach out to them and they should be part of our dialogue.
It is also important in this part of the world to have in mind that our efforts will mainly impact regulated and supervised entities. However, there is a large, and maybe an increasingly large, part of the market in ESAAMLG countries, especially at the bottom of the pyramid, which is served by informal and unregulated institutions. The revised Recommendations have introduced stricter requirements with regard to money or value transfer service providers: countries need to proactively ensure that they are licensed or registered and subject to some sort of monitoring or supervision [Recommendation 14]. We need to factor in the « informality » element in our regional discussion to ensure a level playing field between all private sector players, and the same level of soundness, stability and integrity for the financial sector as a whole.
This leads me directly to the issue of financial inclusion, which is topical for this region, and an important issue for FATF. This is a great honour, for FATF and for ESAAMLG, to welcome again -although virtually this time- Her Majesty Queen Máxima of the Netherlands, in her capacity as Strengthening Financial Integrity through Financial Inclusion. I would like to thank Her Majesty again for her support to FATF work, and her commitment to advance financial inclusion, especially in Africa.
Enlarging access to financial services for the most vulnerable parts of the population, through regulated and supervised channels, is indeed a core element to strengthen financial integrity. AML/CFT measures need to cover the largest range of transactions in order to efficiently protect the integrity of the global financial system. I am confident that the revised FATF Recommendations will provide the required flexibility to meet the goal of financial inclusion, without compromising the measures that exist for the purpose of combating financial crime.
During my Presidency of FATF, I intend to encourage FATF and its regional bodies –the FSRBs- to continue to pay specific attention to the financial inclusion issues in their activities. I therefore warmly welcome ESAAMLG’s ongoing initiative which will usefully contribute to the development of policies and practices to align financial inclusion and financial integrity in the region. I look forward to the conclusions of the ongoing study and I invite you to share the findings with other FSRBs. I would also like to congratulate you for having closely associated the private sector, who has been consulted on their practices relating to the low income groups. Such partnerships are critical to achieve cost-efficient and balanced AML/CFT frameworks, and I would like to encourage you to deepen your dialogue on this specific topic.
The revised Standards and the intensified collaboration with private stakeholders
The FATF Standards were revised in 2012, and countries’ main focus now is on implementation of the new framework. As it was the case with the previous set of Recommendations, a number of AML/CFT responsibilities are imposed to private stakeholders. They will consequently continue to be essential partners for the successful application of the new requirements. Some of the changes brought to the Recommendations will even require an intensified collaboration between public authorities and private stakeholders.
This is the case for example of one of the most substantial changes brought by the , that is the focus on risks, and the overarching requirement to set-up risk-sensitive AML/CFT regimes. Countries will have to adjust their AML/CFT measures according to the level of risks, with enhanced measures applied in higher risk situations. The main difference with the previous approach is that this will no longer be an option for countries, but an obligation.
The effective application of this widened risk-based approach requires as a starting point that countries take appropriate steps to understand, identify and assess their ML/TF risks. This risk-mapping exercise will require a multi-stakeholder effort, through the involvement of different national authorities, for example policy-making bodies, law enforcement and prosecutorial bodies, FIUs etc. Private sector input may also be valuable in building a complete picture of national ML/TF risks and may benefit the assessment process, primarily as a source of information.
Private sector could therefore be invited to contribute to the development of the national risk assessment. But the results of the risk assessment – with the exception of classified information- have to be made available to financial institutions and DNFBPs. This is an explicit requirement of the Recommendations [Interpretive Note to Recommention 1: A.3]. National authorities should ensure that mechanisms are in place to enable institutions to have easy access to updated and comprehensive information about the risk assessment they have conducted. This could give institutions the possibility to open a dialogue with national authorities and explain how, in the national context, they have identified their own risks, and how they manage and mitigate them.
This specific issue will be discussed in greater details during one of the panel sessions later in the programme. But I think that it is useful to flag it up now, as it illustrates well that strengthened and continuous cooperation between the private and the public sectors is one of the key conditions of a successful and efficient AML/CFT national system.
The measurement of effectiveness as an added-value of the MERs for the private sector
This leads me to another element connected to the revised Recommendations, which we know will be of high interest and value for the private sector. It is the new emphasis of the mutual evaluation FATF issues new Mechanism to Strengthen Money Laundering and Terrorist Financing Compliance on effectiveness of the national AML/CFT regime. Let me remind you that all countries in the global FATF network will be assessed for compliance. Previous assessments focused on technical compliance, which addressed the specific requirements of the FATF Recommendations. The new Methodology still includes the assessment of technical compliance, but it adds a new dimension and focuses as well on effectiveness. It will seek to assess how well the Standards’ high-level objective of protecting the country from the threats of ML and FT is achieved.
Assessing effectiveness will help us improve the FATF’s focus on outcomes, identify the extent to which the national AML/CFT system is achieving the objectives of the Standards, and identify any systemic weaknesses. It will also enable countries to prioritise measures to improve their system. This information will prove useful for private stakeholders, as it will provide them with a global appreciation of the whole of an AML/CFT national system, and how well it works. Domestic players can use this information to refine their own risk environment, and international players to review this country’s risk profile.
FATF dialogue and consultation with the private sector
FATF values private sector expertise and operational knowledge, as essential sources of information to evaluate the adaptation of the AML/CFT requirements to business practices, and develop guidelines for the practical application of the Standards. Interaction is also of primary importance as a sounding board to “test” or assess the potential impact of measures envisaged, or brainstorm on possible technical solutions in a specific field. It is also a key channel to hear about market developments and trends, and access new information regarding emerging threats and vulnerabilities to the global financial system.
The FATF Private Sector Consultative Forum is the formal FATF means to reach out to private sector stakeholders, and the platform through which FATF formally engages with the private sector. FATF also works through other channels to liaise and work with private sector bodies: it holds open consultations of interested stakeholders, as it was the case at the occasion of the revision of the Recommendations, or set up ad hoc groups bringing input on specific issues (e.g., for the development of the Revised Guidance on AML/CFT and Financial Inclusion, the Guidance for a Risk-Based Approach to Prepaid Cards, Mobile Payments and Internet-Based Payment Services, or the Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals). More informal contacts also exist, through for example the FATF (President, Secretariat or co-Chairs of our Working Groups) bilateral dialogue with sectoral business organisations. In any case, the channel chosen is tailored and adapted to the individual situation, project and expected feedback.
There are consequently several ways to reach out to the private sector. Whatever route(s) they may want to choose, I would encourage national authorities, who have not yet done so, to engage in a regular and constructive dialogue with the private sector, with a view to achieve an adapted, balanced and cost-effective AML/CFT regime.
I once again thank you for the opportunity to be here today. I wish you a fruitful meeting and thank you for your kind attention.