Thank you very much, Nick Maxwell, for your critical and very thought-provoking comments as validation of the AML/CFT regime will become even more crucial in the FATF fifth round of mutual evaluations, but as you have pointed out, it is highly likely that neither supervisors nor private sectors fully understand how validation should be carried out. Competent authorities and private FIs likely need to know how to validate thoroughly. For example, what are the specific methods for identifying and assessing risk, what KPIs should be used to evaluate effectiveness, should supervisors use more sanctions, to what extent should law enforcement agencies strip criminal proceeds or recover assets, and where should the line be drawn between information sharing and personal data protection, and like the "three-body problem," there are many variables and no easily derived association. We need to start by carefully reading the "core issues" of the Immediate Outcomes in the FATF methodology once again, increasing dialogue between the public and private sectors, and getting supervisors, law enforcement authorities, private FIs, and DNFBPs on the same page and facing the same direction. Time is running out, indeed.
Last week was a big one for FATF with the meeting of FATF country Ministers who provide strategic direction for the next two years. A key point I wanted to highlight is section 11 "EFFECTIVENESS IN THE NEW ROUND OF ASSESSMENTS", where the Ministers state: "We recognise the FATF assessment process as the primary tool to drive greater and more effective implementation of its Standards across the globe. In the next biennium, the FATF will prioritise the delivery of more focused, risk-based and timely mutual evaluations. This includes increasing the frequency of evaluations, a stronger focus on effectiveness of outcomes and providing impactful recommendations to drive the necessary reforms." *My comments*: As I have written about, private-to-private AML information sharing is fast becoming the norm for FATF members (in terms of the legislative side of it), with the UK, Singapore, Hong Kong, the UAE, Canada and the full EU27 now catching up with Mexico and the USA on this front. However, there is still a huge gap in terms of how AML supervisors engage with AML collaboration and take some responsibility for driving positive 'outcomes' of the system at large. Currently, AML collaboration is largely (if not entirely) inconsequential for AML examiners, no matter how positive the outcomes are. Most AML supervisors are limited by legislative mandate to a technical compliance assessment role. If we are to stimulate the investment required in more effective and more proportionate forms of collaborative analysis, then AML supervisors will need to be active in driving this change. They need to care about whether a firm has engaged in collaborative analytics to identify more risk (and help others identify risk). Can the 5th round mutual evaluations help steer AML supervisors to be more outcomes-focused? Can the FATF help evolve AML supervisors to be stewards of effectiveness, not just technical compliance? Some countries are moving in that direction. This needs to be rewarded in the FATF Evaluation Process, but it's still far from clear that it will be. I'll write separately about payments reform and economic crime analysis, which is also receiving a boost in the Ministerial Declaration. See the full Ministers' Declaration here: https://lnkd.in/eZuU8NmF