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FATF — Financial Action Task Force

Definition

FATF (Financial Action Task Force) is the global inter-governmental body that sets international standards for combating money laundering, terrorist financing, and proliferation financing. Established in 1989 at the G7 summit, FATF's recommendations form the foundation of every country's AML/KYC regulations.

Why FATF Matters for eKYC

FATF doesn't regulate individual countries directly — it creates the standards that national regulators then implement. When RBI mandates KYC, when the EU creates AML Directives, when FinCEN enforces BSA — they're all implementing FATF's recommendations.

graph TD
    A[FATF<br/>40 Recommendations] --> B[National Regulators]
    B --> C[RBI - India]
    B --> D[FCA - UK]
    B --> E[FinCEN - USA]
    B --> F[MAS - Singapore]
    B --> G[EU Commission]

    C & D & E & F & G --> H[KYC/AML Laws]
    H --> I[Financial Institutions must comply]
    I --> J[eKYC technology needed]

    style A fill:#4051B5,color:#fff
    style J fill:#2E7D32,color:#fff

FATF's 40 Recommendations (Key Ones for eKYC)

# Recommendation eKYC Relevance
10 Customer Due Diligence Core — defines CDD requirements that eKYC implements
11 Record keeping Defines what records eKYC must maintain
12 PEPs Requires PEP screening — eKYC must include this
13 Correspondent banking EDD for correspondent banking relationships
15 New technologies Explicitly covers eKYC — risk-based approach to digital verification
16 Wire transfers Travel Rule — originator/beneficiary info sharing
20 Suspicious transaction reporting SAR/STR filing obligations

Recommendation 15 — New Technologies (Most Relevant)

FATF's Recommendation 15 specifically addresses digital identity and eKYC:

  • Countries should assess ML/TF risks of new technologies before launching
  • Financial institutions should assess risks of non-face-to-face relationships
  • FATF's Digital Identity Guidance (2020) explicitly accepts eKYC when properly implemented
  • Technology-neutral — doesn't mandate specific methods, but requires risk-based approach

FATF Grey List and Black List

FATF maintains two lists that directly impact eKYC risk assessment:

Grey List (Increased Monitoring)

Countries with strategic deficiencies in AML/CFT but committed to resolving them:

Impact on eKYC Details
Higher risk assessment Customers from grey-listed countries automatically flagged as higher risk
EDD required Enhanced due diligence for transactions involving grey-listed countries
Additional screening More intensive sanctions and PEP screening
Business impact Many institutions avoid dealing with grey-listed countries entirely

Black List (High-Risk)

Countries with significant strategic deficiencies and no commitment to reform:

Impact on eKYC Details
Counter-measures applied Financial institutions must apply counter-measures
Relationship prohibition Many institutions will not accept customers from blacklisted countries
Maximum EDD If relationship is maintained, highest level of scrutiny required

Grey/Black List Impact

Being grey-listed can cost a country up to 7.6% of GDP in reduced capital flows, higher borrowing costs, and reduced foreign investment (IMF estimate). This makes FATF one of the most powerful financial governance bodies in the world.

FATF Mutual Evaluations

FATF evaluates each member country's AML/CFT compliance through Mutual Evaluations:

Rating Meaning Consequence
Compliant Fully meets FATF standards Good standing
Largely Compliant Minor shortcomings Monitoring
Partially Compliant Significant shortcomings Required to improve
Non-Compliant Major deficiencies Risk of grey/black listing

FATF and Digital Identity (2020 Guidance)

FATF's March 2020 guidance on digital identity was a landmark:

  • Explicitly accepted that digital identity systems can provide equal or higher assurance than physical document checks
  • Encouraged regulators to adopt technology-neutral approaches
  • Recognized that eKYC can improve financial inclusion without compromising AML/CFT
  • Emphasized risk-based approach — the assurance level should match the risk

Key Takeaways

Summary

  • FATF sets the global AML/KYC standards that every country's regulations are based on
  • 40 Recommendations cover CDD, PEPs, record keeping, suspicious reporting, and new technologies
  • Grey/black lists directly impact eKYC risk assessment — customers from listed countries need EDD
  • FATF's 2020 Digital Identity Guidance was a major endorsement of eKYC — accepted as equal to in-person
  • Being FATF-compliant is essential for countries — grey-listing can cost up to 7.6% of GDP
  • Recommendation 15 specifically addresses eKYC and digital verification