Following the November 2017 Plenary,  the FATF expressed its strong support for responsible financial innovation in line with the FATF Standards to anti-money laundering and counter-terrorist financing (AML/CFT).  FATF delegates agreed to explore the opportunities that new financial and regulatory technologies present for improving the effective implementation of AML/CFT measures.

FATF Position on FinTech and RegTech - November 2017

Following the joint FATF/GAFILAT Plenary in Buenos Aires, the FATF expressed its strong support for responsible financial innovation in line with the FATF Standards, and exploration of opportunities that new financial and regulatory technologies present for improving the effective implementation of AML/CFT measures. 

Buenos Aires, 3 November 2017 - The FATF met today to discuss how countries are approaching FinTech & RegTech innovations, such as digital ID and KYC utilities.

The FATF strongly supports responsible financial innovation that is in line with the AML/CFT requirements found in the FATF Standards, and will continue to explore the opportunities that new financial and regulatory technologies may present for improving the effective implementation of AML/CFT measures.

This statement builds on the San Jose Principles (below) that were discussed by the participants of the 1st FATF FinTech & RegTech Forum which was held in San Jose on 25 and 26 May 2017:

  • Fight terrorism financing and money laundering as a common goal. Combatting ML deals a significant blow to the many profit-driven criminal activities, while countering terrorism financing limits the capabilities of terrorist groups to prepare or carry out attacks. As stakeholders, we have a shared interest to prevent the misuse of the financial system from the threats of ML and TF, thereby strengthening financial sector integrity and contributing to safety and security. Only by working together may governments and the private sector effectively achieve these goals.
  • Encourage public and private sector engagement. Close engagement between governments, the private sector and academia on financial innovations helps to foster a shared understanding of these developments, identify pertinent issues, and facilitates collaboration to address any concerns as they arise.
  • Pursue positive and responsible innovation. Be on the lookout for innovations that present opportunities to mitigate risks, increase the effectiveness of anti-money laundering and countering the financing of terrorism (AML/CFT) measures, and benefit society in general.
  • Set clear regulatory expectations and smart regulation which address risks as well as allow for innovation. Better understanding of how existing AML/CFT obligations apply to new technologies, products, services, and new paradigms for the provision of financial services is best achieved by governments and the private sector working together to increase awareness and establish clear guidelines as needed.
  • Fair and consistent regulation. Aim for a regulatory environment that is commercially neutral, respects the level playing-field and minimises regulatory inconsistency both domestically and internationally.

 

See also: Outcomes Joint FATF-GAFILAT Plenary, 1-3 November 2017

Outcomes from FATF FinTech and RegTech events

Engagement with the FintTech and RegTech Community is one of the priorities for the FATF. FATF has organised a number of roundtables, meetings and fora involving repesentives from this community, to develop a constructive dialogue. The summaries from these earlier events are listed below. 

FATF Private Sector Consultative Forum - April 2018

FATF Private Sector Consultative Forum, Vienna, April 2018

Chairman’s Summary of FinTech RegTech Outcomes

Vienna, 24 April 2018 – FATF has engaged a constructive dialogue with FinTech and RegTech sectors since 2016, with the overall objective to support innovation in financial services, while addressing the regulatory and supervisory challenges posed by emerging technologies. As part of this ongoing dialogue, governments and private sector experts discussed two key policy issues at the 2018 Private Sector Consultative Forum: digital identity (ID) and crypto assets.

Digital Identification

Participants discussed the private sector’s experience of using digital IDs for the purpose of customer due diligence as part of the on-boarding process. General benefits of digital IDs were highlighted as well as the different challenges met (e.g. technology/security/risk management/data use). The discussion focused on the application of the FATF Recommendations in a digital ID context, and sought to identify any potential need for clarification and/or change in the FATF Recommendations to support the growing use of digital IDs for the conduct of the CDD process by reporting entities.  

Crypto Assets

Public and private sector participants discussed the regulatory landscape for crypto assets, and the extent to which the current FATF standards and guidance adequately address the recent developments in this area. In light of the diverse nature of the crypto landscape, participants noted the importance of clarifying the different definitions used, the need for a co-ordinated global approach, and the importance of the private and public sector continuing to engage on these issues.

FATF FinTech and RegTech Forum - October 2017

FATF FinTech and RegTech Forum - Berlin, October 2017

Berlin, 10 October 2017 – The Financial Action Task Force (FATF) held its second FinTech and RegTech Forum on 9 and 10 October 2017 in Berlin, Germany, chaired by the President of the FATF, Mr. Santiago Otamendi (Argentina).

The meeting, hosted by Germany, was attended by over 150 participants from the FinTech and RegTech sectors, financial institutions, and FATF members, associate members and observers.

Purpose

Outreach to the FinTech and RegTech community continues to be one of the FATF’s priorities in 2017-2018 under the Argentinian Presidency. This forum aims to provide a platform for constructive dialogue between the public and private sector which will contribute to the integrity of the international financial system and support innovation and economic growth, while at the same time managing the risks of money laundering and terrorist financing.

Close engagement between governments and the private sector on financial innovations is important for fostering a shared understanding of these developments, identifying pertinent issues, and facilitating collaboration to address any concerns or challenges as they arise.

The FATF continues to proactively engage with FinTech and RegTech and has, in a very short period of time, developed a constructive partnership with the industry and engaged in useful dialogue to foster a better understanding of how existing AML/CFT obligations apply to new technologies, products, services and other financial innovations.

Key topics discussed

The forum discussed the opportunities that FinTech and RegTech may present in improving the effective implementation of AML/CFT measures, as well as the challenges that emerging technologies and financial innovations may pose.

Views were exchanged on how to balance the benefits and risks associated with technological developments and the different aspects to take into consideration for the development of innovative products from an AML/CFT perspective.

The meeting discussed how the concept of digital ID is being developed in different ways, and how non-face-to-face transactions and relationships might be mitigated by such technologies. Participants focused on some of the different types of products available or being developed, and their possible implications for customer identification and verification, and financial inclusion.

The participants also discussed the potential applications and challenges presented by the use of distributed ledger technology. Developments and ongoing initiatives relating to KYC utilities were also discussed.

Participants heard both the private sector and public sector perspective on how FinTech and RegTech could have the potential to enhance public-private information sharing for AML/CFT purposes.

 

www.fatf-gafi.org/publications/fatfgeneral/documents/fatf-fintech-regtech-forum-oct-2017.html 

FATF FinTech and RegTech Forum - May 2017

FATF FinTech and RegTech Forum - San Jose, May 2017 [adoption of San José Principles]

San Jose, 26 May 2017 – The Financial Action Task Force (FATF) held a FinTech and RegTech Forum on 25-26 May 2017 in San Jose, United States, chaired by the President of the FATF, Mr. Juan Manuel Vega-Serrano (Spain).

The meeting, hosted by PayPal at its headquarters, was attended by over 150 representatives from the FinTech and RegTech sectors, financial institutions, and FATF members and observers.

Purpose

Outreach to the FinTech and RegTech community is one of the FATF’s priorities in 2016-2017, which aims to provide a platform for a constructive dialogue and support innovation in financial services while addressing the regulatory and supervisory challenges posed by emerging technologies. This is the FATF’s 3rd engagement with the private sector on FinTech and RegTech.

FinTech innovation can improve the access and delivery of financial services to customers, businesses, and communities. The financial services paradigm may be reorganised around new platforms, infrastructures, and customer-service provider relationships. The FATF’s perspective is to understand how these developments change the landscape of financial services, and how that in turn affects the vulnerabilities of and threats to the integrity of the financial system in order for those risks to be mitigated or contained.

FinTech and RegTech

The forum discussed the significant trends and developments of FinTech and RegTech, and how the financial services landscape could look like in the near future, including peer-to-peer transfers, crowdfunding, distributed ledger-technology or blockchain-based services, analytical tools, KYC utilities, and digital identity.

Several examples were shared on how countries have approached the regulation of FinTech institutions and activities, for instance through clarifying, modifying, or expanding existing regulatory regimes or by establishing new licencing frameworks. Participants also explored how FinTech and RegTech innovations could have public sector applications and enhance capabilities to monitor risks in the financial system and to investigate money laundering (ML) and terrorist financing (TF).

The meeting discussed how authorities and the private sector were navigating a world where transactions and relationships were increasingly digitised, and shared their experiences in adapting their practices to continue to identify and mitigate the different ML/TF risks brought about by these developments.

Participants explored how technology-based innovations have the potential to be utilised to better fight ML and TF. For example, big data, artificial intelligence, and machine learning could improve the detection of suspicious activities, potential illegal activity and criminal networks. The application of technology to support customer due diligence was discussed in detail, including on the various different models and what that meant for the roles and responsibilities of the user(s) and provider(s).

Guiding Principles (The San Jose Principles)

Participants discussed how the public and the private sectors could move forward to promote further constructive dialogue and engagement on these issues and help strike the right balance between supporting innovation and managing any ML/TF risks that arise in the framework of the following high level, guiding principles:

  1. Fight terrorism financing and money laundering as a common goal. Combatting ML deals a significant blow to the many profit-driven criminal activities, while countering terrorism financing limits the capabilities of terrorist groups to prepare or carry out attacks. As stakeholders, we have a shared interest to prevent the misuse of the financial system from the threats of ML and TF, thereby strengthening financial sector integrity and contributing to safety and security. Only by working together may governments and the private sector effectively achieve these goals.
  2. Encourage public and private sector engagement. Close engagement between governments, the private sector and academia on financial innovations helps to foster a shared understanding of these developments, identify pertinent issues, and facilitates collaboration to address any concerns as they arise.
  3. Pursue positive and responsible innovation. Be on the lookout for innovations that present opportunities to mitigate risks, increase the effectiveness of anti-money laundering and countering the financing of terrorism (AML/CFT) measures, and benefit society in general.
  4. Set clear regulatory expectations and smart regulation which address risks as well as allow for innovation. Better understanding of how existing AML/CFT obligations apply to new technologies, products, services, and new paradigms for the provision of financial services is best achieved by governments and the private sector working together to increase awareness and establish clear guidelines as needed.
  5. Fair and consistent regulation. Aim for a regulatory environment that is commercially neutral, respects the level playing-field and minimises regulatory inconsistency both domestically and internationally.

www.fatf-gafi.org/publications/fatfgeneral/documents/fatf-fintech-regtech-forum-may-2017.html

FATF Private Sector Consultative Forum - March 2017

FATF Private Sector Consultative Forum - Vienna, March 2017

Dialogue on FinTech and RegTech: Opportunities and challenges

Vienna, 22 March 2017 – The Financial Action Task Force (FATF) held a dialogue on FinTech and RegTech in Vienna on 20 March 2017, as part of the FATF Private Sector Consultative Forum. The dialogue was chaired by the FATF President, Mr. Juan Manuel Vega-Serrano.

This dialogue built upon the FATF’s previous engagement with the private sector at the Roundtable on FinTech and Regtech held in Paris on 18 February 2017. Participants in this dialogue included over 250 representatives from the private sector and FATF members and observers.

Recognising the opportunities that FinTech and RegTech present for the private sector and that innovation in FinTech and RegTech spans across many aspects of the financial system, participants discussed how different jurisdictions are approaching the regulation and supervision of FinTech and RegTech, keeping in mind AML/CFT concerns. Participants shared their views and experiences with regard to the opportunities provided by FinTech and RegTech that are related to FATF’s priorities, and also on the challenges faced by the private sector in this area.

Discussions included the use of biometric technology and centralised databases as a means of verifying customers’ identities, the development of artificial intelligence and machine learning towards more effective monitoring and screening systems for suspicious financial activity, as well as the benefits of technology to improve financial access and reduce reliance on cash payments through more efficient processes and lower costs. Participants noted the potential for technological innovation to assist the public and private sectors in meeting the FATF’s objectives of combating money laundering, terrorist financing and other related threats to the integrity of the international financial system, and suggested that all stakeholders consider how best to take advantage of useful developments in this field.

The FATF will hold a standalone event in the United States on 25-26 May 2017 to further engage the sector on their AML/CFT concerns and to explore how they can potentially contribute towards the FATF’s work going forward.

 

Industry Roundtable on FinTech and RegTech - February 2017

Industry Roundtable on FinTech and RegTech - Paris, February 2017

Paris, 18 February 2017 - The Financial Action Task Force (FATF) held a roundtable on FinTech and RegTech in Paris on 18 February 2017. The roundtable was chaired by the FATF President, Mr. Juan Manuel Vega-Serrano.

Technology-based innovations are starting to radically change the financial industry. The FATF has already undertaken a large body of work to understand the risks and vulnerabilities of new payment products and services, and to ensure that AML/CFT measures remain up-to-date as new technologies emerge. The next step and one of the key priorities of the Spanish Presidency is to develop a partnership with the FinTech and RegTech community to support innovation in financial services, while maintaining transparency and mitigating the associated risks. Building such a partnership will enable FATF to become more proactive in the development of standards, guidance and best practice, anticipating and being involved in these new developments rather than responding to them.

Today’s roundtable was a first step to take this initiative forward in order to engage with various stakeholders. The event brought together anti-money laundering/counter-terrorist financing (AML/CFT) professionals, national supervisors, international organisations and other relevant experts, including experts from banks which have partnered with FinTech and RegTech firms to discuss issues of common interest.

Participants in this dialogue included 144 delegates from 30 jurisdictions and 14 organisations, as well as 11 representatives from the banking sector. The key objective of this roundtable was to better understand and exchange views on the current and emerging state of play on interaction of the established traditional financial institutions with the FinTech and RegTech industries, and the impact financial innovations and technologies are having (or expected to have) on reshaping the delivery and provisions of financial services. The practical impact of AML/CFT standards on financial innovation and different approaches followed by a number of jurisdictions to help promote innovative business models and emerging technologies, while mitigating and addressing associated money laundering and terrorist financing risks, were also discussed.

During the half a day-long series of discussions, representatives of financial institutions shared their experiences in the emerging FinTech and RegTech solutions in areas such as distributed ledger technologies, new payment methods and techniques, digital currency, regulatory reporting solutions and products and technologies supporting initial and ongoing customer due diligence measures. Participants also noted how these and other related developments in the emergence of new products, services and technologies are creating opportunities for growth and efficiency, and at the same time, posing challenges both for the private and the public sector.

Since the global nature of some of these developments has a cross-border implication, participants also stressed upon the need to have effective mechanisms for proactive information sharing among relevant stakeholders, in order to take a more coordinated approach in addressing the emerging challenges.

The FATF will continue to remain engaged with these issues through a much broader engagement, including with representatives from the FinTech and RegTech industry, going forward.

Relevant Guidance

FATF Guidance on AML/CFT measures and financial inclusion, with a supplement on customer due diligence

This FATF Guidance aims to provide support in designing Anti-Money Laundering and Terrorist Financing (AML/CFT) measures that meet the goal of financial inclusion, without compromising the measures that exist for the purpose of combating crime. The revised Guidance, reflects the changes made to the FATF Recommendations in 2012 and focuses in particular on the reinforcement of the risk-based approach (RBA), as a general and underlying principle of all AML/CFT systems.  

Guidance for a Risk-Based Approach to Virtual Currencies

This Guidance is intended to explain the application of the risk-based approach to AML/CFT measures in the VC context; identify the entities involved in VCPPS; and clarify the application of the relevant FATF Recommendations to convertible virtual currency exchangers. This Guidance is also intended to help national authorities understand and potentially develop regulatory responses including the need to amend their national laws in order to address the ML/TF risk of VCPPS. This Guidance is also intended to help the private sector better understand the relevant AML/CFT obligations and how they can effectively comply with relevant requirements.