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Aug 17, 2021

FATF recommendations: Financial Action Task Force

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The FATF (or GAFI) and its recommendations set the action framework for the fight against money laundering and terrorist financing. It is crucial to know the importance of this body and the policies it applies to understand how the financial sector is formed and how it must operate.

When we talk about the financial sector we not only refer to banking, but we also include all those related companies and institutions: insurance sector, investments, trading, real estate, intermediaries, leasing companies, cryptocurrency exchanges …

All companies and businesses associated with these areas should take into account the FATF recommendations, AML regulations and KYC requirements to be able to operate.

Download here for free our complete guide on AML5 and eIDAS, the regulatory standards for the financial sector to operate.

What is FATF? Financial Action Task Force

The Financial Action Task Force (FATF), also known as GAFI (Grupo de Acción Financiera Internacional) is an intergovernmental body that establishes standards for risk management and fraud prevention, as well as good practices in the development of activities related to the financial sector.

As a regulatory body, it develops actions for the creation of laws and regulations in more than 200 states that implement these controls and standards. Together with the state authorities of each country, it works on the AML (Anti-Money Laundering) or PBC (Prevention of Money Laundering) rules.

One of its main lines of action is the creation and implementation of the FATF Recommendations (or FATF Standards), which ensure a coordinated global response to prevent corruption, money laundering and the financing of terrorism, among other crimes and attacks, which They occur when companies associated with the financial sector develop their activity.

Why FATF Recommendations Matter 

The FATF 40 Recommendations are the basic and essential framework for combating money laundering and other risks associated with financial activities. These risks are a clear detriment to both companies and organizations in the financial sector and its users, as well as to society as a whole. 

These norms and standards defined by the FATF bring together the regulations associated with the financial system and its associated actors with international legal frameworks. It is important to understand that their compliance is mandatory since they are integrated into the regulatory frameworks and laws of each country, and are not optional.

These recommendations are not static. Since the last major definition, in which the 40 essential points were marked in 2012, they have been constantly reviewed and updated to meet the challenges of the immediate economy and society. The last change took place in October 2020.

Schedule here an appointment with one of our experts and discover how to comply with all the regulations that affect your sector.

FATF 40 Recommendations in 2021

Inside 40 FATF recommendations, we highlight the following that influence the development of operations and activities of finance companies associated with: 

  • Recommendation 10 is crucial for organizations to function. The so-called Customer Due Diligence is the appropriate trust and security framework that organizations must establish in order to incorporate and register their users.
  • Recommendation 11 focuses on maintaining records and how should be carried out in relation to operations carried out by both entities and businesses as users who are customers of them.
  • Recommendation 15 on digital solutions, tools and other technologies used by companies define how they should be digital processes and supply in remote products and services for this mitigates any risks arising from their nature and characteristics. This recommendation is complex, explicit and clearly defines how to act in this regard.

Check here the full 40 FATF recommendations.

FATF and cryptocurrency exchanges

Following one of the major and latest updates to the FATF recommendations, the Financial Action Task Force is working on new guidelines on Defi cryptocurrency and companies and exchange services.

The cryptocurrency sector must comply with a series of rules just like the rest of the financial players. The FATF, now, is in the process of final approval to regulate both bitcoin and the rest of the cryptocurrencies, as well as their platforms and P2P markets. In this way, KYC controls must then be established in all processes in relation to customers.

Get to know in this article all the details about the KYC (Know Your Client).

How to comply with the FATF recommendations

Thanks to the digitization of processes and the emergence of RegTech, companies have found in digital identity solutions the answer to the challenges compliance they face.

Have an appropriate RegTech partner that can offer comprehensive solutions digital identification, electronic signature and authentication to be integrated into the organization’s systems. Similarly, the partner must be a digital compliance advisor with experience and reliability. 

These solutions must comply with the most demanding requirements proposed by the FATF and be updated as well as not neglecting the user experience and addressing issues as fundamental as agility, digitization of processes and user experience.

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