As more and more developing countries adopt legislation and procedures based on the accepted international model and standards, concern has arisen about the difficulties of implementing the recommendations in non-developed settings. Of particular importance is the possibility that inappropriate implementation of AML/CFT standards may exclude the financially vulnerable and marginalised citizens of such countries from the formal financial system. There is concern that in turn may undermine the social and political stability and the economic development of these jurisdictions.
Key findings of the research includes:
Financial inclusion supports financial integrity. The pursuit of financial inclusion and the pursuit of an effective AML/CFT regime are complementary and not conflicting financial sector policy objectives. Without a sufficient measure of financial inclusion, a country’s AML/CFT system will thus safeguard the integrity of only a part of its financial system – the formally registered part – leaving the informal and unregistered components vulnerable to abuse. Measures that ensure that more clients use formal financial services therefore increase the reach and effectiveness of the AML/CFT controls.
Regulation may impact on financial inclusion. The implementation of AML/CFT controls did have an impact on financial inclusion in the countries reviewed. The most vulnerable clients are those who lack the prescribed identification documents, undocumented migrants and clients of institutions (such as money services businesses) whose links with formal financial institutions are severed for AML/CFT reasons. Impact differed from country to country depending on the design of the national AML/CFT framework. This impact has to be considered in the context of the many other factors impacting on financial inclusion as well.
Options for inclusion-friendly implementation. Countries are finding ways to limit AML/CFT risk while promoting financial inclusion. Regulators may, for examples, apply reduced controls, especially money laundering controls, to lower risk transactions (e.g. limiting the verification of client identity for low value transactions or products). Where countries do not have either the public or private capacity to apply full AML/CFT controls at once, regulators may also sequence implementation across financial institutions and transactions based on perceived risk. It is these experiences that the report explores as implementation guidelines for other developing countries. The guidelines provided in this report will be of benefit to countries striving towards the dual goals of protecting their institutions against money laundering and the financing of terrorism as well as extending financial inclusion.
Particular reference to this study was made in a recent World Bank publication "Preventing Money Laundering and Terrorist Financing - A Practical Guide for Bank Supervisors (PDF: 1.9MB)"