CAMS International AML Standards and FATF 2 — Questions and Answers
Question 1: What does the FATF Recommendation 16 (the 'Travel Rule') require?
- Financial institutions to report all cross-border travel by customers to their FIU
- Wire transfer originators and beneficiary institutions to pass along and retain specific information about the parties to a transaction (Correct answer)
- Customers to disclose travel plans when conducting foreign currency transactions
- Financial institutions to block funds transfers to countries that do not comply with FATF standards
Correct answer: Wire transfer originators and beneficiary institutions to pass along and retain specific information about the parties to a transaction
The Travel Rule (Recommendation 16) requires financial institutions initiating wire transfers to include originator and beneficiary information (name, account number, address) with the transfer, and requires receiving institutions to retain this information.
Question 2: How does FATF's approach to virtual assets (cryptocurrencies) differ from its approach to traditional finance?
- FATF has exempted virtual assets from all AML requirements as they are not legal tender
- FATF extended the Travel Rule and other key Recommendations to Virtual Asset Service Providers (VASPs), requiring them to meet the same AML/CFT standards as traditional financial institutions (Correct answer)
- FATF requires all virtual assets to be converted to fiat currency before they can be transferred
- FATF only applies its standards to virtual assets used in cross-border transactions
Correct answer: FATF extended the Travel Rule and other key Recommendations to Virtual Asset Service Providers (VASPs), requiring them to meet the same AML/CFT standards as traditional financial institutions
Through 2019 and 2021 revisions, FATF extended its Travel Rule, customer due diligence, and other Recommendations to VASPs (exchanges, wallet providers), requiring them to implement the same standards as banks and money services businesses.
Question 3: What is a FATF-Style Regional Body (FSRB)?
- A regional law enforcement body that enforces FATF standards within its jurisdiction
- An associate member of FATF that performs similar functions (mutual evaluations, typologies) for non-FATF member jurisdictions in a particular region (Correct answer)
- A regional development bank that funds AML capacity building programs
- A subgroup of FATF members focused on a specific regional money laundering threat
Correct answer: An associate member of FATF that performs similar functions (mutual evaluations, typologies) for non-FATF member jurisdictions in a particular region
FSRBs (such as MONEYVAL in Europe, CFATF in the Caribbean, APG in Asia-Pacific) are associate members of FATF that conduct mutual evaluations and develop AML standards for their regional members who are not full FATF members.
Question 4: What is 'de-risking' and why has FATF raised concerns about it?
- A risk reduction technique FATF recommends for all financial institutions
- The practice of banks exiting entire customer segments or correspondent relationships due to perceived AML risk, which FATF warns undermines financial inclusion and can push transactions to less regulated channels (Correct answer)
- A FATF-endorsed process for removing countries from the grey list
- A technique for reducing AML risk by automating transaction monitoring
Correct answer: The practice of banks exiting entire customer segments or correspondent relationships due to perceived AML risk, which FATF warns undermines financial inclusion and can push transactions to less regulated channels
FATF has expressed concern that wholesale de-risking (exiting entire geographies or customer categories) is not consistent with a risk-based approach, reduces financial inclusion, and can drive transactions to less-regulated and less-monitored channels.
Question 5: Under FATF Recommendation 24, what must countries do to improve transparency of legal persons?
- Ban all shell companies and nominee shareholding arrangements
- Require countries to maintain adequate, accurate, and timely information on the beneficial ownership of companies and make it accessible to competent authorities (Correct answer)
- Require all companies to list their shares on a public stock exchange
- Mandate that all companies file annual reports with their national FIU
Correct answer: Require countries to maintain adequate, accurate, and timely information on the beneficial ownership of companies and make it accessible to competent authorities
FATF Recommendation 24 requires countries to ensure they have mechanisms to identify and access beneficial ownership information for legal persons, either through company registries, financial institutions, or other means, to prevent misuse for money laundering.
Question 6: What is FATF's approach to the risk-based approach (RBA) in the context of financial institutions?
- FATF mandates a uniform, rule-based approach for all institutions to ensure consistency
- FATF endorses the RBA as the foundation of an effective AML/CFT system, requiring institutions to identify, assess, and understand their specific risks and apply commensurate controls (Correct answer)
- FATF's RBA applies only to banks; other financial institutions use prescriptive rules
- The RBA is optional under FATF standards and only recommended for large institutions
Correct answer: FATF endorses the RBA as the foundation of an effective AML/CFT system, requiring institutions to identify, assess, and understand their specific risks and apply commensurate controls
FATF's risk-based approach, articulated throughout its Recommendations, requires that AML controls be proportionate to identified risks — more resources and controls for higher risks, with simplified measures permissible for genuinely low-risk situations.
CAMS International AML Standards and FATF 2
What does the FATF Recommendation 16 (the 'Travel Rule') require?