On 1 July 2021, the Financial Action Task Force (FATF) published a report on the opportunities and challenges of new technologies for anti-money laundering/combating the financing of terrorism (AML/CFT), as new technologies can improve the speed, quality and efficiency of measures to combat money laundering and terrorist financing (ML/TF).

As a global standard-setting body, the FATF is strongly committed to keeping abreast of innovative technologies and business models in the financial sector and ensuring that the global standards remain up-to-date and can enable “smart” financial sector regulation that both addresses risks and promotes responsible innovation.

Since 2017 the FATF has stated that it “strongly supports responsible financial innovation that is in line with the AML/CFT requirements found in the FATF Standards, and will continue to explore the opportunities that new financial and regulatory technologies may present for improving the effective implementation of AML/CFT measures.”

Accordingly, the FATF reviewed the opportunities and challenges of new technologies for AML/CFT to raise awareness of relevant progress in innovation and specific digital solutions. The FATF also looked at the persisting challenges and obstacles to their implementation and how to mitigate them.

Technology can facilitate data collection, processing and analysis and helps actors identify and manage ML/TF risks more effectively and closer to real time. Faster payments and transactions, more accurate identification systems, monitoring, record keeping and information sharing between competent authorities and regulated entities also offer advantages. The report identifies challenges related to the development, adoption and application of these innovative solutions or practices. Many of these challenges are due to outstanding operational and regulatory constraints, such as legacy AML/CFT compliance systems and traditional regulatory frameworks and oversight mechanisms.

The FATF states that increased communication and cooperation between the public and private sector, informed by the type of information and analysis provided by this report, together with an emphasis on responsible adoption of new technologies and effectiveness, in particular with regard to data protection regulations, will be key to overcoming these challenges.

The report identifies emerging and available technology-based solutions. It highlights the necessary conditions, policies and practices that need to be in place to successfully use these technologies to improve the efficiency and effectiveness of AML/CFT.

One of the main challenges hindering the effective implementation of AML/CFT measures is poor understanding of ML/TF threats and risks. Decision-making, based on inadequate risk assessments is sometimes inaccurate and irrelevant, relying heavily on human input and defensive box-ticking approaches to risk, rather than applying a genuinely risk-based approach. When used responsibly and proportionally, innovative AML/CFT technologies can help identify risks and focus compliance efforts on existing and emerging challenges, but manual review and human input remains very important to identify any residual risk that remains.

FATF’s Report can be found here.