ALIGNMENT OF NATIONAL AML-CFT COORDINATION AND INCLUSIVE FINANCIAL INTEGRITY

2. WHAT IS INCLUSIVE FINANCIAL INTEGRITY?

There is no formal definition of Inclusive Financial Integrity. It essentially describes aligning financial inclusion and AML/CFT/ CPF outcomes with respect to the formulation and implementation of related policy and regulation.2

Financial exclusion is a condition or state whereby individuals and communities lack access to formal financial services that could have a significantly positive impact on their livelihoods and well-being. Since financial exclusion disproportionately impacts those in low-income and developing countries, it compromises the achievement of the Sustainable Development Goals (SDGs) as well as national development objectives.3

The aim of the FATF is to set international standards and promote effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and the financing of proliferation, and other related threats to the integrity of the international financial system.

The FATF 40 Recommendations set out a comprehensive and consistent framework of measures that countries should implement to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction. Countries have diverse legal, administrative, and operational frameworks and different financial systems, and cannot all take identical measures to counter these threats. The FATF Recommendations, therefore, set an international standard, which countries should implement through measures adapted to their particular circumstances.

The FATF has a long-standing commitment to supporting financial inclusion. This is an important cross-cutting issue that impacts the work of the FATF and, ultimately, its ability to combat illicit finance. The FATF has completed significant work in this area in recent years, including a supplement on CDD to the FATF’s Guidance on financial inclusion. There is also a strong focus on financial inclusion in the FATF’s recent work on digital ID, and their response to COVID-19, and their 2021 Project on Mitigating the Unintended Consequences of the FATF Standards.

The FATF has worked with FATF-style regional bodies (FSRBs) to ensure that financial exclusion issues are highlighted as a potential ML/TF/PF risk. The FATF methodology contains a reference to the level of financial exclusion as one of the other contextual factors, which might affect the ML/TF/PF risks and increase or reduce the effectiveness of AML/CFT/CPF measures. However, a review of mutual evaluation reports (MERs) reveals that in most cases, they do not contain an assessment of the extent to which financial exclusion could be influencing the level of effectiveness of the AML/CFT/CPF system of the country.

2 Alliance for Financial Inclusion and CENFRI. Inclusive Financial Integrity:

A Toolkit for Policymakers, 3. Available at: https://www.afi-global.org/ publications/inclusive-financial-integrity-a-toolkit-for-policymakers/ 3 Ibid, 3.