This video explains the Financial Action Task Force's (FATF) methodology for assessing the effectiveness of a country's Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) system, focusing on achieved outcomes rather than just technical compliance.
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Welcome to part 2 of my videos on the methodology used by FATF for Technical Compliance
and an Effectiveness rating. We already covered Technical Compliance in Part 1 so today we’ll
mainly focus on the FATF Effectiveness rating. So let’s jump right into, today’s video!
The evaluation of a nation's AML/CFT system's effectiveness is just as
significant as the evaluation of its technical compliance to FATF standards.
So let’s continue the overview started on the FATF methodology
and see the how the Effectiveness part is rated. As a reminder this is applied together with the
Technical Compliance rating when reviewers assess each of the 40 FATF recommendations.
As indicated on the FATF portal Effectiveness is assessed in order to:
"(a) improve the FATF’s focus on outcomes; (b) identify the extent to which the national
AML/CFT system is achieving the objectives of the FATF standards,
and identify any systemic weaknesses; and (c) enable countries to prioritise
measures to improve their system. For the purposes of this Methodology,
effectiveness is defined as “*The extent to which the defined outcomes are achieved*”. “
An evaluation on effectiveness essentially aims to demonstrate the overall efficacy of the AML/CFT
ecosystem throughout the country. A completely different methodology is used to evaluate the
country’s effectiveness compared to what we have seen when assessing technical compliance.
Ensuring Effectiveness in fact doesn’t include verifying that certain conditions
are satisfied or that every component of a certain recommendation is in place. Instead,
it involves a judgment of whether, or to what degree, predetermined outcomes
are being accomplished, for example: whether the primary goals of an AML/CFT system or programme,
in accordance with the FATF Standards, are actually achieved.
High-Level Objective, Intermediate and Immediate Outcomes
Let’s now explore the FATF methodology to evaluate effectiveness.
According to the FATF effectiveness is evaluated on the basis of eleven Immediate Outcomes.
Those should build a balance between a general awareness of the effectiveness of a country's
AML/CFT system and a granular knowledge about how well its element sections are performing.
These eleven Immediate Outcomes feed into three Intermediate Outcomes;
each of which reflects one of the primary thematic objectives of AML/CFT measures. Both Intermediate
and Immediate Outcomes are overarched by the High Level objective and together, they represent the
key goals that a good AML/CFT system should deliver from an effectiveness perspective.
According to the FATF official Methodology paper, evaluators
should attempt to provide answers to two key questions for each of the Immediate Outcomes:
The first one is ”To what extent is the outcome being achieved?
and the second question is: “What can be done to improve effectiveness?”
So those eleven Immediate Outcomes must all be reviewed by the evaluators and
the higher risk areas should be investigated in greater depth throughout the country assessment
and reflected in the final report. However, is recommended that assessors should first
identify higher risk areas in a preliminary phase in together with the assessed country.
Additionally, they also need to identify any low-risk areas,
that may not require an extensive examination to ensure the resources are properly distributed.
Let’s now see which are the effectiveness ratings that are produced upon completion
of the country assessment:
**But before we do that if you are finding interesting the content from this video
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**What are the effectiveness ratings?**
So, here are the 4 outcome produced for the FATF **effectiveness ratings:**
**High level of effectiveness:**
The Immediate Outcome is achieved to a very large extent. Minor improvements needed.
**Substantial level of effectiveness:** The Immediate Outcome is achieved to a
large extent. Moderate improvements needed.
**Moderate level of effectiveness:** The Immediate
Outcome is achieved to some extent. Major improvements needed.
**Low level of effectiveness:** The Immediate Outcome is not achieved or
achieved to a negligible extent. Fundamental improvements needed.
Lastly let’s now see how Effectiveness is linked to the Technical Compliance rating
that we’ve discussed already in part 1 of this video.
The degree of technical compliance in a country, influences the evaluation of its effectiveness.
A nation with a poor degree of compliance with the technical requirements of the FATF Recommendations
is unlikely to have an efficient AML/CFT system. In many instances, severe inadequacies in
putting the technical aspects of the Recommendations into practise will be the
primary cause of low effectiveness. However, in rare situations, assessors could also come to the
conclusion that there is a low degree of technical compliance but still some level of effectiveness.
To close this overview on the FATF methodology for assessing Technical
Compliance and Effectiveness I lastly want to remind you that the ratings given
under this latest Methodology is not directly comparable with those ratings given
by the old 2004 FATF Methodology. This is because the revision and
consolidation of the 40 FATF Recommendations and Special Recommendations took place
in 2012 when they introduced separate assessments for technical compliance and effectiveness.
I have published before on a series of videos covering the 40 FATF Recommendations so
I will leave you here a link to that.
finding valuable my content, press the thumb up and leave a comment. Also check
the video description for useful links and to support my channel go to Patreon.com/FCAgent.
Lastly, thank you for watching, I hope you enjoyed today’s video and until next time: See you soon!
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