World Bank v. FATF: A critique of National Risk Assessments

𝗪𝗢𝗥𝗟𝗗 𝗕𝗔𝗡𝗞 𝘃. 𝗙𝗔𝗧𝗙: It is always interesting to come across a study that critiques FATF’s work. In a recent report the World Bank takes a closer look at National Risk Assessments (NRAs). For those not familiar with NRAs, the Financial Action Task Force (FATF) requires nations to demonstrate an understanding of the money laundering risks they face in the country by conducting National Risk Assessments.

Since 2012, FATF has imposed this new requirement on countries. FATF essentially sought to move away from a rule-based AML system in which financial institutions (FIs) had to follow specified laws and regulations, to a risk-based approach (RBA), in which FIs and DNFBPs adjust their procedures and policies on the basis of their specific relevant risks.

Risk-based approaches are not only challenging to entities subject to AML requirements; they also impose new obligations on governments, since regulators must determine whether the entities understand the relevant money laundering risks and adapt accordingly.

World Bank researchers examined eight of the most advanced nations’ NRAs in order to test their knowledge of those fundamental concepts and to draw lessons from them for national governments.

The countries examined are Canada, Italy, Japan, the Netherlands, Singapore, Switzerland, the UK, and the US. All 8 countries are FATF members, not to mention some are the most important financial centers.

A deeply flawed methodology is what they found. The eight NRAs show very different conceptualizations, analytic approaches, and products. Each raises serious issues regarding the risk assessment methodology.

For example, most relied largely on expert opinion, which they solicited in ways that are inconsistent with the well-developed methodology for making use of expert opinion.

They misinterpreted data from suspicious activity reports and failed to provide risk assessments relevant for policy makers.
Only one described the methodology employed.

The report concludes with a set of recommendations for policymakers and NRAs regarding improving risk assessments.

A very insightful read for AML professionals that adds to the argument that, in its current form, the fight against money laundering is deeply flawed.

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