FATF implements new ‘grey list’ rules to aid developing nations
The Financial Action Task Force (FATF) has introduced reforms to its grey list criteria, designed to offer more leniency to lower-capacity countries. The grey list, which highlights nations requiring heightened monitoring for money laundering and terrorism financing risks, is being overhauled to prevent the undue penalisation of economically weaker jurisdictions.
Under the new guidelines, countries with financial sector assets under $10 billion or those classified as “least developed” by the United Nations will not be automatically grey listed, even if they fail to meet FATF standards. Exceptions will only occur if member countries reach a consensus that a smaller jurisdiction poses a significant risk. In such cases, the affected nation will receive an extended observation period — typically two years — to resolve deficiencies in its anti-money laundering (AML) practices.
These changes are expected to reduce the number of low-capacity nations on the grey list, potentially halving their presence in the next assessment cycle. This approach aims to mitigate the economic damage caused by grey listing, such as reduced international investment and limited access to global financial markets.
Tougher standards for wealthier member states
While low-income countries will benefit from more flexible rules, wealthier FATF member states, including the U.S., UK, and EU countries, will face stricter oversight. High-capacity nations will have a shorter observation period before being added to the grey list if they are found to be at risk of facilitating money laundering or terrorism financing. The FATF reforms seek to hold these larger economies to higher standards, given their significant role in the global financial system.
Additionally, countries with financial assets exceeding the $10 billion threshold but facing financial distress will be granted an extended observation period of up to 24 months, offering them more time to comply with FATF requirements before being grey listed.
Addressing concerns of inequality
The FATF’s revision of its grey listing criteria follows criticism of unequal treatment between powerful member states and emerging markets. A recent FATF report highlighted shortcomings in regulating non-financial sectors in nations like the U.S. and Australia, raising concerns over an enforcement imbalance.
By prioritising larger economies for stricter scrutiny while offering more leniency to smaller nations, the FATF aims to better target those countries that pose the greatest risks to the global financial system.
Potential benefits for the Philippines and other nations
Countries like the Philippines, which is currently on the FATF grey list, may benefit from these new rules. The Philippine government, under the leadership of President Ferdinand Marcos Jr, has been working to meet FATF standards, aiming for removal from the list by the year’s end. Authorities, including gaming regulator PAGCOR, are closely monitoring the situation to ensure the country’s compliance with international standards.
Broader implications of the new criteria
These reforms reflect the FATF’s commitment to tackling the financial and social challenges posed by illicit financial flows, particularly in the world’s least developed nations. By refining its grey listing process, the FATF seeks to enhance international cooperation against financial crimes while offering support to nations that struggle to fully meet its standards.
The updated criteria aim to focus FATF efforts on countries posing significant risks to global financial stability, reinforcing the integrity of international markets while helping vulnerable nations build stronger and more resilient economies. The changes are expected to take effect during the upcoming assessment cycle.
