Financial Action Task Force
FATF Plenary – FATF publishes outcomes of plenary session – 25 February 2021
The Financial Action Task Force (FATF) has published the outcomes of its plenary session held on 22, 24 and 25 February 2021.
Key outcomes include:
- finalised guidance to help countries take an effective, risk-based approach to supervision guidance on investigating and prosecuting terrorist financing and work on illicit arms trafficking and terrorist financing;
- agreement to publish a consultation on draft guidance to identify, assess and mitigate the risks of the financing of weapons of mass destruction; and
- updated guidance on virtual assets and virtual asset service providers.
The FATF also advanced work on ongoing issues, including: (i) digitalisation; (ii) beneficial ownership; (iii) the recovery of criminal assets; (iv) money laundering from environmental crimes; and (v) the financing of ethnically and racially motivated terrorism.
FATF Plenary outcomes
AML/CTF supervision – FATF publishes guidance on applying a risk-based approach – 4 March 2021
FATF has published guidance on applying a risk-based approach to anti-money laundering (AML) and counter-terrorist financing (CTF) supervision.
FATF explains that a risk-based approach is one that involves tailoring the supervisory response to fit the assessed risks, allowing supervisors to allocate finite resources most effectively when tackling money-laundering and terrorist financing risks. In comparison to a rule-based approach, a risk-based approach is less burdensome on lower risk sectors or activities so is crucial to maintain or increase financial inclusion.
The guidance is composed of three parts:
- part 1 contains high-level guidance on risk-based supervision and explains how supervisors should assess the risks that their sectors face to prioritise their activities;
- part 2 sets out strategies to address common challenges in risk-based supervision with jurisdictional examples; and
- part 3 contains country examples from across the global network.
FATF guidance on a risk-based approach to supervision
Webpage
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Proliferation financing – FATF publishes draft guidance on risk assessment and mitigation – 1 March 2021
FATF has published a consultation on draft guidance in relation to the assessment and mitigation of proliferation financing risk.
The draft guidance is focused on the new obligations in relation assessing and mitigating such risk introduced in October 2020 by way of amendments to FATF’s Recommendation 1. The amendments are designed to ensure financial institutions are aware of the risks involved in their business, and do not unwittingly support, or become part of, proliferation financing networks or schemes.
The aim of the new guidance is to help both private and public sectors implement the new FATF requirements and focuses on the conduct of risk assessments, the application of corresponding risk mitigation measures and the supervision of risk assessments and mitigation measures.
Key aspects of the consultation on which FATF is seeking views are:
- whether the draft guidance provides sufficient clarity in distinguishing the mandatory requirements of the updated FATF Recommendation and additional measures that may support implementation of the new requirements;
- whether the risk mitigation section of the draft guidance provides sufficient clarity on how financial institutions can address the risk of potential breach, non-implementation and evasion of targeted financial sanctions; and
- whether the draft guidance sets clear expectations for financial institutions in the case of high-risk and low-risk customers and business relationships, including the likely impact on derisking and financial inclusion.
The consultation closes on 9 April 2021, after which FATF will consider responses and revise the draft guidance for discussion at its June 2021 meeting.
Consultation on draft guidance
European Banking Authority
MLD4 – EBA publishes final report on AML and CTF guidelines – 1 March 2021
The European Banking Authority (EBA) has published its final report on revised guidelines in accordance with Article 17 and 18(4) of the Fourth Money Laundering Directive (2015/849) (MLD4). The guidelines set out the factors that firms should consider when assessing the money laundering or terrorist financing risk associated with a business relationship or occasional transaction and how firms can adjust the extent of their customer due diligence (CDD) to be proportionate to the money laundering or terrorist financing risks they have identified.
The revised guidelines apply to both firms and national supervisory authorities and take into account changes made by the Fifth Money Laundering Directive ((EU) 2018/843) (MLD5) to the EU anti-money laundering (AML) and counter-terrorist financing (CTF) framework under MLD4. They update and strengthen a number of aspects including:
- business-wide and individual money laundering and terrorist financing risk assessments;
- CDD measures, including new guidance on the identification of beneficial owners, the use of innovative solutions to identify and verify customers’ identities and how firms should comply with legal provisions on enhanced CDD (EDD) related to high-risk third countries; and
- new sectoral guidelines for crowdfunding platforms, providers of currency exchange services, corporate finance, account information service providers (AISPs) and payment initiation services providers (PISPs).
The guidelines will be translated into the official EU languages and published on the EBA website. The guidelines will apply three months after publication in all EU official languages. Upon the date of application, the original guidelines (JC/2017/37) will be repealed and replaced with the revised guidelines. The deadline for competent authorities to report on whether they comply with the guidelines will be two months after the publication of the translations.
EBA guidelines on AML and CTF risk factors
Press release
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AML and CTF – EBA publishes Opinion on risks affecting the EU’s financial sector – 3 March 2021
The EBA has published its biennial Opinion on risks of money laundering (ML) and terrorist financing (TF) affecting the European Union’s financial sector. The risks identified include those that are applicable to the entire financial system, such as the use of innovative financial services, while others affect specific sectors, such as de-risking.
Some of the risks identified have already been discussed in previous Opinions on ML/TF risks but continue to be relevant today, such as the risks associated with virtual currencies. Newly identified risks include differences in the treatment by competent authorities of financial institutions’ involvement in facilitating or handling tax-related crimes.
The Opinion also observes that COVID-19 has illustrated how new ML and TF risks can emerge unexpectedly, impacting firms’ ability to ensure adequate compliance with regulations and safeguards, and competent authorities’ ability to ensure the ongoing supervision of firms in the current context of restrictions on movement.
Alongside this Opinion the EBA has developed an interactive tool giving European citizens, competent authorities and financial institutions user-friendly access to all ML/TF risks covered in the Opinion.
EBA Opinion on the risks of ML and TF affecting the EU financial sector
Interactive tool
Press release
UK Parliament
Covert Human Intelligence Sources (Criminal Conduct) Act 2021 – received Royal Assent – 1 March 2021
The Covert Human Intelligence Sources (Criminal Conduct) Act 2021 (the Act) has received Royal Assent and will enter fully into force on such diverse days as the Secretary of State may appoint.
The Act amends the Regulation of Investigatory Powers Act 2000 and provides an express power to authorise a covert human intelligence source to participate in conduct which would otherwise constitute a criminal offence. These criminal conduct authorisations (CCAs) must be necessary, proportionate and compatible with obligations under the European Convention on Human Rights.
The Act requires the Investigatory Powers Commissioner to keep under review public authorities’ use of the power and to include limited information on CCAs in their annual report. The public authorities able to authorise the use of covert human intelligence sources are the intelligence agencies, the police, HMRC, HM Forces, the SFO, the Environment Agency, the FCA, the Food Standards Agency, the Gambling Commission, the Home Office, the Ministry of Justice, the Department of Health and Social Care, the National Crime Agency and the Competition and Market Authority.
Covert Human Intelligence Sources (Criminal Conduct) Act 2021
