AML/CFT regulation : implications for financial service providers that serve low-income people

Abstract

Across the world, new measures are being introduced to combat money laundering and the financing of terrorism. All financial service providers, including those working with low-income communities, are-or will-be affected by these measures. This paper summarizes the implications of the international framework for anti-money laundering (AML) and combating the financing of terrorism (CFT) for financial service providers working with low-income people. While each country may adapt the international AML/CFT standards developed by the Financial Action Task Force (FATF), in general, financial service providers are required to: enhance their internal controls to cater specifically for AML/CFT risks; undertake customer due diligence procedures on all new and existing clients; introduce heightened surveillance of suspicious transactions and keep transaction records for future verification; and, report suspicious transactions to national authorities. The paper argues in favor of (1) gradual implementation of new measures; (2) the adoption of a risk-based approach to regulation; and (3) the use of exemptions for low-risk categories of transactions. South Africa provides one example of how a country's AML/CFT regulations can be modified to take into account better the needs of low-income clients. Customer due diligence regulations which require an income tax number and proof of residential address for clients proved too stringent to allow many low-income people to open bank accounts.