The globally acknowledged standard setting body for anti-money laundering and the fight against terrorist financing, the Financial Action Task Force (FATF) has only recently [1] acknowledged that financial inclusion and financial integrity (i.e. the prevention of money laundering and terrorist financing) are complementary public policy aims.

This has led to a new FATF work stream on financial inclusion which is seeking views from the industry on how to best achieve these complimentary policy aims.

One major regulatory hurdle facing operators wishing to deploy mobile money services is the disproportionate implementation of FATF rules intended to prevent money laundering and terrorist financing. Whilst these rules are necessary, they have not been designed for people living at the bottom of the pyramid. They are often implemented in a disproportionate way by national regulators, considerably impairing the ease of use of unbanked customers.

The main messages from the GSMA Mobile Money for the Unbanked Programme on how to improve financial inclusion in a way that is complementary to financial integrity are the following:

Registration

• Identification requirements of undocumented people should be applied in a risk-based manner with little or no identification for low risk situations and services, but with limits on transactions, frequency and volume of the amounts customers can transact. Such limits can reduce the potential for money laundering and terrorist financing.
• Mobile operators bring huge advantages to the effort to improve financial inclusion: their distribution and marketing capabilities can reach a large part of the population, which is too costly for the banks to service directly. This distribution capability translates into ease of registration. Mobile financial services are therefore well placed to connect the unbanked population to financial services. Such services bring activity from the informal unregulated sector, into formal regulated financial services – and this enhances the effectiveness of AML/CTF regimes.

Licensing

• Mobile operators should be regulated only by the financial regulator for any financial services they are offering, just as any other provider of financial services would be. Only the financial regulator has the know-how and responsibility for regulating financial service.
• Licensing mobile operators or any other non-banks offering financial services creates a level playing field in which the rules are the same for all market players. The respective licenses (e-money, payments, deposit-taking) are awarded based on the risk of the services offered – not by the type of provider itself – and are therefore the same for all market players.

Compliance/Implementation

• FATF rules should be implemented in a technologically-neutral and risk-based way ensuring a level playing field between different players in the market (same rules for the same risks)
• Main challenges for MNOs arise less from the FATF rules, but more so from their application and implementation by national regulators. Many regulators shy away from a risk-based implementation of existing FATF principles and remain too conservative, because they lack guidance and are concerned about negative effects of a more flexible approach. Therefore FATF should provide:

• positive encouragement for financial regulators to apply a risk-based approach when determining compliance obligations
• clarification of its definitions of low risk with respect to money laundering and terrorist financing
• a process for national authorities which indicates how to conduct a risk-based approach and how to choose appropriate measures for low, medium and high risks. The GSMA has developed a ‘Methodology for Assessing Money Laundering and Terrorist Financing Risks“

Any exemptions from FATF rules should be risk-based applicable to all market players equally.

• Key for reaching the unbanked population is not only overcoming hurdles with regard to identification, but also enabling immediate account opening. The customer should be able to start using the service immediately by transacting small amounts without going to a bank branch to provide a proof of address. Otherwise the hurdle of starting to use the service may not be overcome and customers will not gain access to formal financial services.

To read the full response, click here.