FATF 2025 Guidance: Financial Inclusion & AML/CFT

Executive Summary: Why This Matters

The FATF's 2025 guidance represents a paradigm shift in how we approach financial inclusion and AML/CFT compliance.

• Key Innovation: RBA is now a tool FOR inclusion, not against it
• Regional Impact: Addresses unique challenges in South Asia, Southeast Asia & Sub-Saharan Africa
• Practical Solution: Tiered KYC, alternative ID verification, and simplified due diligence
• Business Opportunity: Enables serving 1.4 billion unbanked while maintaining compliance

Who This Guide Is For

Introduction

Compliance professionals worldwide navigate a unique challenge: upholding robust Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) standards while supporting goals of bringing millions of unbanked and underbanked citizens into the formal economy. The FATF's updated June 2025 Guidance is a critical document that formally recognizes this challenge and provides a clear framework for achieving both objectives.

This is not just another set of rules; it is a fundamental shift in perspective. The guidance explicitly states that financial inclusion and financial integrity are mutually reinforcing goals. Excluding people from the formal system drives them to cash-based or unregulated channels, which increases ML/TF risks and hinders our ability to monitor illicit activities.

This summary breaks down the key takeaways from a practical perspective, with specific focus on implementation challenges and opportunities in South East Asia, South Asia, and Sub-Saharan Africa.

Regional Context: Why This Matters for Our Markets

Understanding the unique characteristics of our regions helps compliance managers and regulators implement the FATF guidance effectively:

• High Informal Economy Penetration: South East Asia, South Asia, and Sub-Saharan Africa have significant informal sectors, creating both challenges and opportunities for financial inclusion.
• Mobile Money Leadership: Our regions lead global mobile money adoption - M-Pesa in Kenya, bKash in Bangladesh, and similar platforms across South East Asia demonstrate successful inclusive financial models.
• Remittance Dependencies: High reliance on international remittances (particularly in South Asia and Sub-Saharan Africa) requires balancing inclusion with cross-border compliance.
• Digital ID Infrastructure: Varied digital ID maturity - from India's Aadhaar to emerging systems in Africa - affects KYC implementation strategies.

1. Core Principle: The Risk-Based Approach (RBA) for Inclusion

The central message of the entire guidance is the power of a properly implemented Risk-Based Approach (RBA). For too long, the RBA has been seen primarily as a tool for identifying high-risk scenarios. This guidance re-frames it as a tool for identifying lower-risk scenarios where simplified measures are not just possible, but encouraged.

• Key Shift in the 2025 Standards:
  From "May Allow" to "Should Allow and Encourage": The language in the FATF Standards has been strengthened. Previously, countries "may decide to allow" simplified measures. Now, they "should allow and encourage" their use in identified lower-risk situations. This gives you, the compliance manager, a much stronger basis to advocate for more inclusive policies within your institution and with regulators.
• The RBA is not a "one-size-fits-all" approach. It requires a nuanced understanding of your specific context, including:
  • Country-Level Risk: Your national risk assessment should consider the size of the informal/cash economy, the prevalence of unregulated money transfer services (MVTS), and the specific vulnerabilities of your un/underserved populations.
  • Institutional Risk: Your own institution's risk assessment must be granular. It's not enough to label an entire sector (like small-scale agriculture or market traders) as "high-risk." The RBA demands you assess the risks posed by specific products, delivery channels, and individual customer behaviours.

2. Practical Tools for Financial Inclusion

The guidance is rich with practical examples drawn from developing economies. Here are the most relevant tools and concepts for our markets:

• Simplified Due Diligence (SDD): This is the cornerstone of the approach. SDD does not mean no CDD. It means that the timing, intensity, and type of verification can be adjusted based on the assessed risk.
  • What you can simplify: Reduce the amount of information collected at onboarding, accept alternative forms of identity verification, or infer the purpose of an account from its nature (e.g., a basic savings account for a farm worker).
  • Regional Implementation: In India, Jan Dhan accounts use simplified KYC with Aadhaar linkage. In Kenya, M-Pesa uses phone number verification for basic accounts. In Bangladesh, bKash employs tiered verification based on transaction limits.
• Tiered/Graduated KYC: Many potential customers lack official ID but pose a very low initial risk.
  • Tier 1 (Low-Risk Entry): Open a basic account with minimal or alternative identification (e.g., a phone number and name). Strict limits on balances, transaction values, and functionality.
  • Tier 2 & 3 (Graduation): As the customer's needs grow, they can "graduate" to higher tiers with more functionality by providing official ID and other verification documents over time.
  • Examples in Practice: Mobile money in Ghana and Senegal, basic bank accounts in Nigeria and Mexico, India's Jan Dhan-Aadhaar-Mobile (JAM) trinity, and Indonesia's Laku Pandai program.
• Alternative and Flexible ID Verification: The guidance moves away from rigid reliance on government-issued photo IDs.
  • Relying on other documents: birth certificates, tax cards, or even expired IDs in certain low-risk contexts.
  • "Referee" system: A letter from a suitable "referee" (village headman, religious leader, school principal) can vouch for identity.
  • Digital & Biometric ID: National biometric ID databases (e.g., India's Aadhaar, South Africa's Home Affairs system, Indonesia's e-KTP) for instant, low-cost, reliable remote verification.
  • Targeted flexibility: Special measures for vulnerable groups (e.g., refugees, survivors of domestic abuse) using documentation from NPOs or UN agencies.
• Product/Channel Design for Risk Mitigation: The risk of a product can be managed through its design.
  • Basic savings accounts (Indonesia's Laku Pandai, Jordan's mobile money): No minimum balance, low fees, but capped at a certain maximum balance and transaction volume.
  • Limited functionality (Türkiye): Offering accounts to higher-risk individuals (like international students from certain jurisdictions) but restricting online banking or international transfers.
  • Agent-based models: Using trusted community members as banking agents (India's Business Correspondents, Kenya's M-Pesa agents) to extend reach while maintaining oversight.

3. Addressing the De-Risking Challenge

Many institutions face pressure from international correspondent banks, leading to "de-risking"—the wholesale termination of relationships with entire categories of customers or regions.

• FATF's Clear Stance: Wholesale de-risking is inconsistent with the RBA. It is an inappropriate application of the FATF standards.
• The Mandate: Financial institutions are required to assess and manage risk on a case-by-case basis, not avoid it entirely by cutting off legitimate customers.
• Actionable Steps: Use this guidance to engage in constructive dialogue with regulators, correspondent banks, and your own management. Demonstrate that you have a robust RBA that allows you to safely bank lower-risk customers and vital community entities like remittance providers and NPOs. The guidance from The Netherlands on creating NPO-specific risk baselines is a useful model to study.

Key Takeaways for Compliance Managers and Regulators

Practical Action Items: These are immediate steps you can take within your organization to implement the FATF guidance effectively.

• Champion the RBA Internally: Educate your board, management, and frontline staff. The goal is not "zero failure" but "proportionate risk management." The RBA is a tool to enable business, not just block it. Regional Focus: Use examples from your region (M-Pesa, bKash, Jan Dhan) to demonstrate successful inclusion models.
• Review Your Risk Assessments: Move beyond broad, high-level categories. Identify specific lower-risk customer segments, products, or geographies where you can apply simplified measures. Regional Focus: Consider agricultural workers, small traders, migrant workers, and rural communities as distinct risk categories.
• Innovate Your CDD Processes: Explore tiered accounts and alternative ID verification. Use this FATF guidance as a basis for discussions with your local regulator about what is permissible. Regional Focus: Leverage existing digital ID infrastructure (Aadhaar, e-KTP, national ID systems) and mobile penetration for innovative verification.
• Leverage Technology: Investigate how digital ID, biometrics, and better data analytics can make your compliance processes both more effective and more inclusive. Look to the JAM Trinity in India (Jan Dhan-Aadhaar-Mobile) as a world-leading example of a Digital Public Infrastructure (DPI) for inclusion. Regional Focus: Partner with fintech and telecom providers to develop inclusive solutions.
• Engage and Document: Actively participate in national forums on financial inclusion. Document every decision to apply simplified measures, clearly linking it to your institution's risk assessment. This documentation is your best defence and demonstrates a mature approach to compliance. Regional Focus: Engage with regional FSRBs (APG, ESAAMLG, GIABA) for peer learning and best practice sharing.
• Monitor and Adapt: Establish metrics to track both inclusion progress and risk management effectiveness. Be prepared to adjust approaches based on data and emerging risks. Regional Focus: Consider regional risk factors like cross-border remittances, informal trade, and emerging digital payment systems.

This guidance empowers us to build more inclusive financial systems in our countries, not in spite of AML/CFT rules, but in line with their true spirit. The success stories from our regions demonstrate that financial inclusion and integrity can be mutually reinforcing goals.

4. Regulatory Implementation and Policy

Strategic Framework & Policy Considerations: This section focuses on the broader regulatory environment, policy frameworks, and institutional structures needed to support financial inclusion while maintaining AML/CFT effectiveness.

Successfully implementing the FATF guidance requires understanding both the regulatory framework and practical implementation challenges in our regions:

• National Risk Assessment Integration:
  • Ensure your NRA includes financial inclusion objectives alongside ML/TF risk assessment
  • Map informal economy characteristics and identify inclusion opportunities
  • Assess digital infrastructure readiness and gaps
• Cross-Sector Collaboration:
  • Engage with telecom regulators for mobile money integration
  • Coordinate with digital ID authorities for seamless KYC processes
  • Partner with fintech associations to understand emerging technologies
• Capacity Building Priorities:
  • Train examiners on risk-based supervision for inclusive products
  • Develop guidance for financial institutions on implementing simplified measures
  • Create templates for documenting risk assessments and simplified measure decisions

Resources & Further Reading

• FATF Official Website: www.fatf-gafi.org (https://www.fatf-gafi.org)
• FATF Guidance on Financial Inclusion: Financial Inclusion Publications (https://www.fatf-gafi.org/en/topics/financial-inclusion.html)
• FATF Risk-Based Approach Guidance: FATF Recommendations (https://www.fatf-gafi.org/en/publications/fatfrecommendations/fatf-recommendations.html)
• World Bank: Financial Inclusion Overview (https://www.worldbank.org/en/topic/financialinclusion/overview)
• CGAP: Financial Inclusion and AML/CFT (https://www.cgap.org/topics/collections/financial-inclusion-and-aml-cft)