Paper

AML/CFT Regulation: Implications for Financial Service Providers that Serve Low-Income People

Examining implications of the AML/CFT regulations

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. The AML/CFT standards require financial service providers to:

  • Enhance their internal controls to cater to AML/CFT risks;
  • Undertake customer due diligence measures on all clients;
  • Keep transaction records for future verification;
  • Report suspicious transactions to national authorities.

Negative implications of AML/CFT standards would be:

  • Additional costs of compliance to financial service providers;
  • Reduction in the access to formal financial services for low-income people.

To avoid these outcomes, the paper argues in favour of:

  • Gradual implementation of new measures;
  • Adoption of a risk-based approach to regulation;
  • Use of exemptions for low-risk categories of transactions.

The paper also discusses:

  • Differences between money laundering and the financing of terrorism;
  • Institutions covered by AML/CFT regulations;
  • AML/CFT measures required at the national and institutional levels;
  • South Africa as an example of how a countrys AML/CFT regulations can be modified to meet the needs of low-income clients.

The paper concludes that there is scope for further exploration of the ways in which institutions serving low-income clients could comply with the new regulations.

About this Publication

By Isern, J., Porteous, D., Hernandez-Coss, R., Egwuagu, C.
Published