New publication on proportional risk-based AML/CFT regimes for mobile money

This blog was co-written by Simone di Castri and Jeremiah Grossman. 

Over the past few years, mobile money services have helped to address two of the major barriers to financial inclusion: convenience and affordability. Mobile money has made it possible for over 100 million unbanked and underserved people around the world to access convenient and affordable low-value transfer and payment services.

Furthermore, the evidence to date demonstrates that the use of mobile money has not introduced significant risk or compromised the integrity of the financial sector. On the contrary, the reduction in informal, anonymous cash transactions is helping to strengthen financial integrity. The Financial Action Task Force (FATF) Recommendations, guidance documents, and the FATF mandate itself constitute official recognition that financial exclusion is a money laundering and terrorist financing risk and that reducing financial exclusion is vital to achieving an effective AML/CFT system.

In February 2012, the FATF revised its international standards on combating money laundering and the financing of terrorism and proliferation. Known as the FATF Recommendations, these Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) standards set the global framework for Customer Due Diligence (CDD) and Know Your Customer (KYC) requirements for financial institutions, including mobile money providers. Following the release of the revised standards, the FATF published a set of guidance documents to help regulators, assessors, and service providers implement the Recommendations and monitor and evaluate how they are being applied, using a mechanism known as the ‘mutual evaluation’.

The most important change in the 2012 Recommendations is that a risk-based approach to AML/CFT is now central to the implementation of all of the FATF standards. The FATF requires countries to base many key elements of their AML/CFT regime design on an assessment of the specific AML/CFT risks they face with different industries, products, delivery channels, and relevant domestic conditions. The FATF allows exemptions from AML/CFT obligations in “proven low risk” cases and the use of simplified CDD measures in “lower-risk” cases. The FATF has repeatedly emphasised that applying an overly cautious approach to AML/CFT can have the unintended consequence of excluding legitimate businesses and consumers from the financial system. Ineffective regulation or controls may enable money launderers and terrorist financiers to abuse mobile money services, but AML/CFT controls should not unduly inhibit access to formal financial services for low-income, rural, or other financially excluded and underserved groups.

As the adoption of new technologies and payment instruments scales, it is critical to ensure that mobile money services remain safe and secure. Regulators and AML/CFT assessors should continue to monitor the mitigation measures implemented by the industry in order to understand vulnerabilities and ensure that providers’ AML/CFT controls are up-to-date and appropriately designed. Mobile money providers should develop and implement AML/CFT controls that are effective and proportional to the specific risks of these services: neither unduly burdensome nor insufficiently rigorous.

The publication that we are releasing today examines various aspects of the FATF Recommendations and other relevant guidance documents to provide a practical illustration of the elements that should be incorporated in a risk-based assessment of mobile money products. We also identify examples of countries where a proportional AML/CFT framework has been implemented through regulations that are effective, efficient, and not unduly burdensome.

This publication also draws on the results of a GSMA survey of 37 mobile money providers conducted between March and May 2015, which revealed several emerging approaches to mitigating and managing money laundering and terrorist financing risks. The survey results demonstrated that providers are using a variety of policies, processes, and practices to identify and verify the identities of their customers; screen, train, and monitor staff and agents; track and monitor transactions; and address suspicious transactions.

The purpose of this publication is to:

  • Help regulators understand the risks posed by mobile money services and the measures mobile money service providers are taking to mitigate these risks, both of which can help to inform the design of efficient and proportional AML/CFT regulations; and
  • Help assessors understand mobile money services and the risks and risk mitigation measures to inform the mutual evaluation process.

Download the publication