FATF Recommendations UpdateFATF Standards Updated February 2025

The Financial Action Task Force (FATF) has updated its Standards following the February 2025 FATF Plenary, introducing key changes to Recommendations 1, 10, and 15, as well as related Glossary definitions.

This February 2025 FATF Recommendations Update brings critical changes aimed at promoting financial inclusion and enhancing AML/CFT measures. Here’s what you need to know.

Background

The Financial Action Task Force (FATF) has been at the forefront of combating money laundering, terrorist financing, and the proliferation of weapons of mass destruction since its inception in 1989. Over the years, the FATF has continuously updated its Recommendations / Standards to address emerging threats and challenges. During its February 2025 Plenary, the FATF introduced critical updates to its Standards, focusing on Recommendations 1, 10, and 15, alongside adjustments to the FATF Glossary. These amendments aim to promote financial inclusion while maintaining robust anti-money laundering and counter-terrorist financing (AML/CFT) measures.The February 2025 FATF Recommendations Update follows an extensive public consultation process that gathered over 140 responses from various stakeholders, including non-profit organizations, banks, payment providers, insurers, academics, accountants, lawyers, and other international organizations. This update is part of the FATF’s ongoing efforts to support a risk-based approach and promote financial inclusion, a key priority under the Mexican Presidency.

Objectives of the 2025 FATF Standards Update

The primary objective of the February 2025 update is to enhance financial inclusion by emphasizing proportionality and simplified measures under the risk-based approach. The FATF aims to create a more enabling environment for financial institutions to implement simplified measures, thereby providing greater confidence and assurance when offering financial services to underserved populations. Additionally, the update seeks to improve the clarity and effectiveness of customer due diligence (CDD) and the use of new technologies in financial services. A significant part of the update includes changes to Recommendation 1 and its interpretive note, which aims to provide clearer guidance on implementing the new recommendations and ensuring a more consistent application across different jurisdictions.

Key Provisions

The February 2025 FATF Recommendations Update includes several key provisions:

1. Changes to Recommendation 1 and Its Interpretive Note:

Emphasizes the importance of proportionality in the risk-based approach, ensuring that measures are commensurate with the level of identified risk.

Encourages the use of simplified measures in lower-risk situations to facilitate financial inclusion

Provides detailed guidance on implementing these changes, helping jurisdictions apply the recommendations consistently

2. Amendments to Recommendations 10 and 15:

Focuses on enhancing the clarity and effectiveness of customer due diligence (CDD) and the use of new technologies in financial services

Addresses the risks associated with non-face-to-face interactions and the application of artificial intelligence technologies

3. Updated Glossary Definitions

Provides clearer guidance on key terms related to financial inclusion and the risk-based approach

Public Consultation on Financial Inclusion Guidance

To further enhance its guidance, the FATF has launched a Public Consultation on AML/CFT measures and financial inclusion. Stakeholders, including financial institutions, regulators, and non-profit organizations, are invited to provide feedback by April 4, 2025. The consultation seeks to enrich the guidance with real-world case studies and practical examples, particularly for non-lower risk contexts, such as conflict zones and non-face-to-face interactions. Interested parties are encouraged to submit their responses, including specific drafting suggestions with tracked changes, via email to FATF.Publicconsultation@fatf-gafi.org, with the subject line “Comments of [author] on the draft FATF FI Guidance”

Support for National Financial Inclusion Strategies

As part of its efforts to address financial exclusion and other unintended consequences of AML/CFT measures, the FATF launched a project in February 2021 to study and mitigate these issues. This involved a stocktake and consultations with stakeholders to understand the extent of the problem. In March 2022, the FATF Plenary referred the findings to relevant Working Groups to refine policy options. Additionally, the FATF’s ongoing guidance, such as the 2013 and 2017 updates on AML/CFT measures and financial inclusion, provided context for these considerations. These efforts played a crucial role in shaping the February 2025 FATF Recommendations update to emphasize proportionality and simplified measures, aligning with national financial inclusion strategies to create a more inclusive and effective global financial system.

Implications for the Caribbean

The updated Recommendations align with ongoing National Financial Inclusion Strategies across the Caribbean. These changes are expected to drive tailored regulatory frameworks and innovations such as AI-powered digital identity verification. Jurisdictions in the Caribbean will likely respond by adopting more tailored financial regulations. Governments, regulators, and reporting entities will need to amend existing policies to align with the FATF’s emphasis on proportionality and simplified measures, which means engaging stakeholders, providing guidance, and monitoring compliance more effectively. For instance, the Central Bank of Barbados may increase its efforts to promote financial inclusion by adjusting its regulatory framework. Similarly, the Office of Financial Sanctions Implementation (OFSI) will collaborate closely with authorities in the British Overseas Territories to ensure compliance with updated FATF Recommendations.

The updated FATF Recommendations are designed to make it easier for financial institutions to provide services to underserved populations, including Micro, Small, and Medium Enterprises (MSMEs). For example, in Barbados, the Central Bank has been actively promoting financial inclusion through various initiatives aimed at increasing access to financial services. The upcoming Mutual Evaluation for Barbados will assess the country’s progress in implementing AML/CFT measures and its compliance with the FATF Recommendations. Similarly, Belize’s National Financial Inclusion Strategy (NFIS) focuses on making financial services more accessible and affordable for individuals and MSMEs. Belize’s recent success in its Mutual Evaluation, conducted in January 2025, highlights the country’s commitment to financial inclusion and enforcement of AML/CFT measures.

Regulators will play a crucial role in ensuring a smooth transition to the updated standards. They will need to offer clear guidance to financial institutions and non-financial entities, emphasizing the importance of customer due diligence (CDD) and the use of new technologies. This might involve updating regulatory frameworks to accommodate innovative solutions like artificial intelligence and digital identity verification. Financial institutions, in turn, are likely to revise their strategies and policies to comply with the new standards, which could entail significant investments in technology and staff training. For example, Jamaica’s National Financial Inclusion Strategy, launched in 2017, aims to improve financial access and usage through the adoption of advanced digital financial services.

Conclusion

While the implementation of the updated FATF Recommendations will lead to increased costs for financial institutions and non-financial entities, the long-term benefits of a more inclusive and secure financial system are expected to outweigh these initial expenses. Investments in new technologies, staff training, and compliance monitoring will be necessary to meet the updated standards. However, continuous monitoring and compliance requirements may strain the resources of both regulators and financial institutions. The FATF Recommendations Update emphasizes the importance of proportionality and simplified measures, which align with the goals of these national strategies. Despite the challenges, the FATF Recommendations Update represents a significant step forward in promoting financial inclusion and enhancing the effectiveness of AML/CFT measures in the Caribbean. By working collaboratively, Caribbean countries can create a more inclusive and resilient financial system that benefits all stakeholders.