Policymakers and regulators from more than 20 countries in the AFI Global Standards Proportionality Working Group (GSPWG) met in Moscow, Russia last week, from 7-9 June, on the occasion of the group’s 4th meeting, co-hosted by Bank of Russia.

The meeting focussed on the key challenges for policymakers in achieving proportionate implementation of global standards in three principal areas: the Financial Action Task Force (FATF) standards for combatting money laundering and terrorist financing; the Basel Committee on Banking Supervision (BCBS) standards for global financial stability; and the initiatives led by the Financial Stability Board (FSB) to monitor and address the risks posed by shadow banking systems.

In opening the meeting, Deputy Governor of the Bank of Russia and member of the AFI Board Mr. Vladimir Chistyukhin highlighted that “collaboration with the global standard setting bodies (SSBs) is necessary to narrow the gap between standards and inclusion” and that in respect of shadow banking “we need a risk-based approach to bring financial intermediaries out of the shadows”.

The meeting highlighted the key achievements of the GSPWG so far which include:

• Successful organization of the Global Symposium on Proportionality in Practice (May 2015) and adoption of KL Resolution on Proportionality in Practice;
• Contribution to the first international conference on financial inclusion and shadow banking, and adoption of the Moscow Resolution (November 2015); and
• Elevation of the issue of de-risking including preparation of a special report and Governors’ Roundtables held at the IMF/WB Annual Meetings (October 2015) and Spring Meetings (April 2016).

Nevertheless, a number of key challenges remained in implementing proportionality in practice. Members shared their experiences in implementing simplified due diligence measures, particularly in respect of digital financial services, national ID systems, regulations on agent banking and deposit insurance, as well as new fintech and crowdfunding regulations.

The meeting featured four inter-linked sessions on compliance with AML/CFT standards, which focussed respectively on: the key global trends in the AML/CFT standard setting, compliance and enforcement environment; the role of new technology in AML/CFT and financial inclusion with country presentations from Russia, Uganda and India; an update from the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) on their work on financial inclusion and the perspective of the FATF-style regional bodies (FSBRBS); and presentation of the AFI & G-24 Special Report on “Stemming the tide of De-Risking through Innovative Technologies and Partnerships”. The sessions highlighted an ever more complex overall AML-CFT environment in which compliance costs are rising and risk averse behaviour amongst financial institutions is clearly apparent, in some instances leading to significant de-risking, as well as the clear potential of innovative technology in this field if applied correctly, especially in client identification with biometric ID, and e-KYC processes. The importance of National Risk Assessments and capacity building for regulators and supervisors to provide credibility for country’s AML/CFT regimes was also reinforced.

Remaining sessions enabled members to hear first-hand the key findings from the White Paper of the G20 Global Partnership for Financial Inclusion (GPFI) “Global Standard Setting and Financial Inclusion: An Evolving Landscape”, the BCBS guidance document on financial supervision and financial inclusion, and the report of the Committee on Payments and Market Instruments (CMPI) on the “Payment Aspects of Financial Inclusion”. GSPWG members additionally deliberated the follow-up actions arising from last November’s conference also held in Moscow on Shadow Banking and Financial Inclusion as well as proposals for a conference to be held 29-30 November 2016 in Bali, Indonesia, on the interrelationship of Financial Stability and Financial Inclusion.

Reflecting on the key action areas identified in the course of GSPWG’s work, participants adopted a provisional strategic action plan for GSPWG from 2016-2020 to be submitted to the AFI Global Standards Committee for approval and focussing on the three key areas of advocacy and awareness; knowledge expertise; and adoption and implementation.

The meeting concluded with agreement amongst members to establish a new subgroup of GSPWG focusing on implementation of the Moscow Resolution on Shadow Banking and Financial Inclusion, to be chaired by the Bank of Russia; the appointment of the working group’s representative from Bangladesh Bank Mr. A.K.M Islam as the GPSWG champion on gender and women’s financial inclusion; the election of Mr. Ricky Satria of Bank Indonesia and Mr. Mel Racela of Banko Sentral Ng Pilipinas as GSPWG co-chairs, and the re-election of Mrs. Marina Kahar, Bank Negara Malaysia, as GSPWG Chair for a new two-year term.