Editorial: Regulatory impact assessment: towards a better approach for the FATF
| DOI | https://doi.org/10.1108/JMLC-05-2022-149 |
| Published date | 21 April 2022 |
| Date | 21 April 2022 |
| Pages | 265-267 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Louis De Koker |
Editorial: Regulatory impact
assessment: towards a better
approach for the FATF
The Financial Action Task Force (FATF) was not planned to develop into the global
standard-setting body for anti-money laundering and counter financing of terrorism and
proliferation (AML/CFT/PF). Its initial 1990 Recommendations –later known as the Forty
Recommendations –weresimply recommendations for countries on measures to be adopted
to prevent money launderingin their financial systems.These initial recommendations were
not the result of exhaustive research but was simply informed by the experience and wish
lists of a small group of experts (De Koker and Turkington, 2016). Neither did the FATF
give a lot of thought to their actual impact on the relevant offences or to any potential
negative consequencesthat may flow from the implementation of the recommendations.
Timing; the strategic alignment with international objectives relating to terrorism, anti-
corruption and proliferation; its peer review mechanism; and its leverage of economic
penalties against non-compliant jurisdictions helped to position the FATF as a global
financial standard-setter whose non-binding standards are hard “soft law”that countries
ignore at their peril. Little has however changed in the way in which the FATF sets its
standards. Primary reliance is still placed on expertise of the FATF member delegations
rather than research and objectiveanalysis. This increases the chances that standards may
fail to deliver on policy objectives and may have unintended negative consequences.
I, therefore, believe that FATF should embrace regulatory impact assessment (RIA) and
should do so as part of a more evidence-basedstandard-setting process.
Since the publication of the 1990 FATF Recommendations, RIA has emerged as an
important element of an evidence-based approach to policymaking. RIA is defined by the
OECD as “a systemic approach to critically assessing the positive and negative effects of
proposed and existing regulations and non-regulatory alternatives”(OECD, 2022). RIA
approaches are not novel. The OECD has, for example, formulatedRIA best practices as far
back as 1997 (OECD, 1997), and today some form of RIA has been adopted by all OECD
members (OECD, 2022). The OECD-housed FATF, therefore, does not have reach far to
access expertise on RIA.
The absence of such assessments whenFATF standards are formulated limit regulatory
options when countries undertake their national RIAs: Negative consequences that are
baked into the FATF standards cannot be easily avoided,and countries are faced with the
option to either fail to comply witha FATF standard or to comply while attempting to limit
the negative consequences within the limited space allowed by the standard. While such
tensions cannot be avoided entirely, they can be limited if the FATF ensured that its
standard-settingprocesses are informed by RIA.
RIA is not a silver bullet. The assessments are often complex, especially where data
is absent. RIA will certainly be challenging for the FATF as the assessments will have
to be performed at a global level. RIA will, however, identify potential impacts and will
inform the design of appropriate standards that can effectively and efficiently impact
money laundering and the financing of terrorism and proliferation. Importantly, it can
help the FATF to identify potential unintended consequences, allowing them to avoid
these.
Editorial
265
Journalof Money Laundering
Control
Vol.25 No. 2, 2022
pp. 265-267
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-05-2022-149
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