FATF Releases Draft Guidance on Proliferation Financing Risk

The FATF is seeking feedback on the guidance from financial institutions and DNFBPs and will revise the text ahead of June 2021 discussions.

The FATF (Financial Action Task Force) is consulting private sector stakeholders on draft guidance on proliferation financing risks.

In October 2020, the FATF revised Recommendation 1 and its Interpretive Note to require countries , financial institutions and DNFBPs (designated non-financial businesses and professions) to identify, assess, understand and mitigate their proliferation financing risks.

The draft guidance under development is aimed at assisting the private and public sectors in complying with these new obligations, conducting risk assessments in the context of proliferation financing, and applying corresponding risk mitigation measures.

At its recent Plenary, FATF delegates agreed to release the draft guidance for consultation before finalising and approving it in June.

The draft guidance provides four categories of risk indicators that could suggest the presence of proliferation financing risk and prompt further monitoring and examination. The four categories are (1) Customer Profile Risk Indicators; (2) Account and Transaction Activity Risk Indicators; (3) Maritime Sector Risk Indicators; and (4) Trade Finance Risk Indicators.

The FATF asks whether the four categories of risk indicators are relevant, useful, and sufficient to enable an understanding of the risk of potential breach, non-implementation, and evasion of targeted financial sanctions, as well as what other indicators could be included.

The draft guidance details specific measures that countries, financial institutions and DNFBPs could take to mitigate their proliferation financing risks, depending on contextual factors and the source of proliferation financing risks.

For financial institutions and DNFBPs, these could include improved onboarding processes, enhanced customer due diligence procedures, effective maintenance of customer master data, regular controls for effectiveness of procedures to conduct sanctions screening, and leveraging existing compliance programmes and internal controls to identify sanctions evasion.

The FATF asks for feedback on the risk mitigation measures, and whether the draft guidance sets clear expectations for financial institutions and DNFBPs in case of high-risk and low-risk customers and business relationships, including likely impact on de-risking and financial inclusion.

The draft guidance, available here, is open for comment until 9 April 2021.

The FATF says it has not yet approved the draft guidance, and will consider the views received and revise the text for discussions at its June 2021 meetings.

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