FATF: The Global Authority on Financial Crime

The Financial Action Task Force (FATF) is an intergovernmental organisation designed to combat money laundering (AML), terrorist financing (CFT), and other threats to the global financial system. Established in 1989 by the G7, FATF sets international standards and fosters the practical implementation of legal, regulatory, and operational measures to protect financial systems from exploitation.

Think of FATF as a global financial watchdog that designs and monitors frameworks to ensure that countries work cohesively to combat financial crimes. For instance, by setting unified guidelines, FATF ensures that practices like customer due diligence or financial surveillance are standardised across its member states.

It’s essential for anyone entering the finance world, from institutions to governments, to be familiar with FATF’s guidelines and lists, as its influence touches regulatory compliance, national financial laws, and individual bank operations globally.

The FATF’s core responsibilities can be summarised under five key functions:

1. Setting AML/CFT Standards
The FATF formulates international guidelines—namely, the FATF 40 Recommendations—that all member countries and jurisdictions are encouraged to adapt to their legal frameworks. 

2. Publishing FATF Recommendations
These 40 Recommendations serve as the backbone of global AML/CFT compliance policies. 
Example: A financial institution operating in the United Kingdom must follow laws such as the UK's Money Laundering Regulations (MLR 2017), which adhere to FATF guidelines. 

3. Running Mutual Evaluations
FATF conducts extensive peer-reviewed evaluations to measure how well a country complies with its standards. 
Example: A positive evaluation can strengthen foreign investment confidence, while negative findings can lead to economic consequences. 

4. Maintaining Grey and Blacklists
Countries that fail to meet FATF standards may find themselves on the FATF greylist or blacklist, which directly impacts their international relationships and financial credibility. 

5. Promoting Risk-Based Frameworks
FATF’s strategies emphasise understanding and mitigating risks rather than fixed prescriptions, allowing countries flexibility in how they implement their plans.

FATF maintains two critical lists to highlight non-compliant countries:

Greylist (Jurisdictions Under Increased Monitoring)
A country on this list doesn’t pose a world-scale threat but has weaknesses in its AML and CFT measures. Being greylisted often signals that reforms are needed to prevent advancement to the blacklist.
Example: Countries that land on this list often experience restricted business relationships with global financial institutions.

Blacklist (High-Risk Jurisdictions with Strategic Deficiencies)
Severe non-compliance to FATF standards places countries on this list. Being blacklisted shuts down opportunities for global trade, finance access, and foreign investments.

Reputation Impact: Financial institutions often classify transactions involving blacklisted countries as extraordinarily high-risk and potentially avoid conducting operations.
Examples of economic impacts include reduced access to global banking networks and impaired credit ratings.

A Blueprint for Financial Safety

Issued as an international standard for combating financial crimes, FATF’s 40 Recommendations are categorised into four core areas:

1. Risk-Based Approach: Guidance requires institutions to assess and mitigate risks flexibly rather than blanket approaches.
2. Beneficial Ownership Transparency: Legal entities must disclose ownership structures to prevent shell companies from hiding illicit funds.
3. Customer Due Diligence (CDD): Institutions are responsible for identifying and verifying their clients.
4. Global Cooperation: Nations must collaborate in sharing information to disrupt cross-border financial crimes.

Direct application example: Adhering to FATF standards helps financial institutions detect red flags before complex laundering schemes unfold. Solutions such as those provided by LSEG Risk Intelligence can support institutions with comprehensive customer screening capabilities.

Membership Overview

Although FATF has 39 members—including the US, UK, EU, China, and India—its influence spans over 200 jurisdictions globally. Non-members often align with its standards to foster trade and financial access.

Collaboration with Regional Organisations

FATF works closely with affiliated regional bodies (e.g., MONEYVAL, APG) to streamline cooperation across continents.

Example of Influence: FATF membership translates into greater influence in shaping national financial crime frameworks—which directly impacts trade relationships and foreign investment influxes.

Compliance with FATF recommendations is vital for accessing international capital markets. Non-compliance may lead to sanctions, reduced international trust, and business constraints.

Domestic Influences: FATF recommendations form the backbone for many financial crime regulations worldwide:

• UK: Money Laundering Regulations 2017
• USA: Bank Secrecy Act
• EU Nations: Anti-Money Laundering Directives (AMLD)
  

Financial institutions globally align their AML policies with FATF benchmarks:

• Institutions refine customer classification methods per FATF's risk-based approach.
• Periodical suspicious activity reports (SARs) are generated with FATF operational principles.
• Enhanced transaction monitoring technology ensures adherence to FATF mandate recommendations.

Such frameworks shape the confidence of global regulators like the FCA or FinCEN, boosting institutions' reliability within international markets.