The guidance highlights the need for effective onboarding processes, ongoing monitoring, staff training, risk management, sanctions screening, and a strong compliance culture.
The FATF (Financial Action Task Force) has published new guidance to help the public and private sectors effectively implement new requirements to identify, assess, understand and mitigate their proliferation financing risks.
In October 2020, the FATF revised Recommendation 1 and its Interpretive Note to introduce the new requirements, which specifically apply to North Korea and Iran. A consultation on a draft version of the new guidance was issued in March.
The guidance was finalised at the fourth FATF Plenary under the German Presidency of Dr Marcus Pleyer on 21-25 June. The outcomes of the Plenary were published here.
The guidance explains how countries, financial institutions, DNFBPs (designated non-financial businesses and professions) and VASPs (virtual asset service providers) should conduct risk assessments in the context of proliferation financing, and how they can mitigate the risks they identify.
It provides an updated list of indicators of the potential breach, non-implementation, or evasion of proliferation financing targeted financial sanctions.
To guard against proliferation financing risk, the FATF highlights the need for strong customer onboarding procedures and ongoing monitoring processes, staff training, effective risk management procedures, proper sanctions screening systems, regular and flexible screening procedures, and a strong compliance culture.
The guidance also warns against concerted efforts by designated persons and entities to circumvent targeted financial sanctions by using shell or front companies, joint ventures, dummy accounts, middlemen and other fraudulent/sham intermediaries.
The guidance includes advice to supervisors and self-regulatory bodies responsible for ensuring that proliferation financing risks are being properly assessed and mitigated.
In particular, it emphasises the need for supervisors, financial institutions, and other relevant entities to apply the new obligations in a manner that is proportionate to the risks identified, in order to avoid contributing to de-risking or financial exclusion.
“Assessment and mitigation of proliferation financing risks requires co-operation between public and private sectors,” the FATF said. “Ongoing public-private engagement, including during the different stages of risk assessment, will enhance the analysis, and facilitate the development of appropriate mitigation tools.”
To this end, the FATF said it will continue to progress efforts to promote understanding of the new FATF requirements on counter proliferation financing and the new guidance.
The guidance is available here.