FATF

Also written Financial Action Task Force · GAFI · Groupe d'Action Financière

The intergovernmental body founded in 1989 that writes the global AML/CFT standards — the 40 Recommendations plus IX Special Recommendations — and grey-lists or black-lists countries that fail them.

In plain language

The Financial Action Task Force is the body that decides what counts as an adequate anti-money-laundering regime, for the whole world.

It was founded in 1989 on the initiative of the G7 Summit in Paris, and is also known by its French name, Groupe d'Action Financière (GAFI). It makes no law. It writes standards, assesses whether countries meet them, and publishes the answer — and because banks everywhere read that answer before deciding who to do business with, the standards behave like law.

India became a member in 2010. IFSCA states expressly that it is committed to a regulatory environment that is fully FATF compliant, which is why the IFSCA Guidelines read more like the FATF Recommendations than like a domestic circular.

How it works

FATF began with 16 members; by 2023 it had 40. More than 200 countries and jurisdictions have committed to implement its Standards, assessed with the help of nine FATF Associate Member organisations together with the IMF and the World Bank.

In its first year FATF issued a report containing forty Recommendations; after the 9/11 attacks in 2001 it expanded its mandate to cover terrorist financing and added the IX Special Recommendations. The 40+9, with their interpretive notes and the Glossary definitions, are collectively the FATF Standards. The 40 are grouped into seven areas, from AML/CFT policies and coordination through to international cooperation, and their cornerstone is the risk-based approach — Recommendation 1.

In 2019 FATF Ministers gave the body an open-ended mandate after three decades of time-bound ones, and extended the Presidency to a two-year term running 1 July to 30 June. Elisa de Anda Madrazo of Mexico is President from 1 July 2024 to 30 June 2026, succeeding T. Raja Kumar of Singapore; Giles Thomson of the United Kingdom became Vice-President on 1 July 2025.

The decision-making body, the FATF Plenary, meets three times a year and can name a country a Jurisdiction under Increased Monitoring — the "grey list" — or a High Risk Jurisdiction — the "black list", where FATF urges all jurisdictions to apply enhanced due diligence and, in the most serious cases, counter-measures. Nine FATF-Style Regional Bodies extend the network; India belongs to two of them, the Asia/Pacific Group (APG) and the Eurasian Group (EAG).

A worked example

A GIFT IFSC banking unit runs a correspondent relationship with Larimar Bank, incorporated in a jurisdiction that the FATF Plenary moves to the grey list at its February meeting.

Nothing in Indian law changes that morning. What changes is the bank's own rulebook. The IFSCA Guidelines require it to be cautious with respondent banks located in jurisdictions which have strategic deficiencies or have not made sufficient progress in implementing FATF Recommendations, to monitor payment messages to and from high-risk jurisdictions, and to apply enhanced due diligence proportionate to the risks to persons from countries for which FATF calls for it.

So the unit re-papers the relationship: fresh enquiries into Larimar's management, major business lines and the quality of supervision over it; an assessment of its AML/CFT controls; and Senior Management approval to continue. A USD 4.2 million trade payment routed through the relationship is held while name screening runs.

Had the jurisdiction gone to the black list instead, the workbook's language escalates: FATF then calls on all members to apply enhanced due diligence and, in the most serious cases, counter-measures to protect the international financial system.

One vote at a Plenary in Paris; one Gujarat banking unit rewriting a client file.

Why NISM asks about it

Chapter 8 is entirely FATF — origin, mandate, Recommendations, the grey and black lists, the FSRBs and the trade-based money laundering guidance. Chapter 1 (section 1.3.2) introduces it and gives India's 2010 membership and its two FSRBs. Expect pure recall — 1989, G7 Paris, 16 to 40 members, Plenary three times a year, nine FSRBs — and one conceptual question on what grey-listing actually obliges a regulated entity to do.

Common exam traps

Grey list = Jurisdiction under Increased Monitoring; black list = High Risk Jurisdiction. The country has committed to resolve its deficiencies on the grey list; the black list is where counter-measures are urged.
40 + 9, not 49 in one list. The IX Special Recommendations are a separate terrorist-financing set added after 2001.
The Plenary meets three times a year; the Presidency runs two years from 1 July. Do not merge the two numbers.
India is a member of FATF (2010) and of two FSRBs, APG and EAG — not of all nine.
FATF issues no penalties and binds no one directly. It sets standards and publishes assessments; the obligation on a Regulated Entity comes through the IFSCA Guidelines and the PMLA.
The workbook says the forty Recommendations were revised in 2023, while the Recommendations table it reproduces is captioned "Version as adopted on 15 February 2012". Both statements appear in Chapter 8; if a question turns on the date, read what it is actually asking — the framework's adoption, or its latest revision.

Check yourself

1.Which measure would most effectively strengthen international cooperation to combat trade-based money laundering in line with FATF standards?
1. a)Establishing clear information-sharing gateways through MOUs, Mutual Legal Assistance Treaties, and customs-to-customs cooperation for exchange of trade data
2. b)Restricting cross-border trade transactions through higher customs duties
3. c)Conducting unilateral investigations without involving foreign jurisdictions
4. d)Limiting reporting obligations only to domestic financial institutions
Show the answer
Answer: (a) Establishing clear information-sharing gateways through MOUs, Mutual Legal Assistance Treaties, and customs-to-customs cooperation for exchange of trade data
Countries need to work cooperatively to identify and combat trade-based money laundering. Consistent with FATF standards, countries could put clear and effective gateways in place to facilitate the prompt and constructive exchange of information. In practice, this may require broader use of memoranda of understanding and mutual legal assistance treaties between countries to facilitate the sharing of information related to specific transactions. It also means greater recourse to mutual assistance agreements between customs agencies to facilitate the exchange of export and import data in order to identify trade anomalies that may indicate potential trade-based money laundering abuses.

Three instruments in one paragraph — MOUs, mutual legal assistance treaties, and customs-to-customs agreements.

Option B addresses the wrong problem. Duties restrict the volume of legitimate trade; the vulnerability lies in the limited recourse to verification procedures or programs to exchange customs data between countries and the limited resources that most customs agencies have available to detect illegal trade transactions.

Options C and D are the opposite of cooperation. International cooperation is one of the seven areas of the 40 Recommendations — 36 International instruments · 37 Mutual legal assistance · 38 Mutual legal assistance: freezing and confiscation · 39 Extradition · 40 Other forms of international cooperation — and Special Recommendation V requires each country to afford another the greatest possible measure of assistance.

The other two steps identified by the study:

Building Better Awareness — a stronger focus on training programs for competent authorities (e.g., customs agencies, law enforcement agencies, financial intelligence units, tax authorities and banking supervisors), which could result in substantial increases in the number of suspicious transaction reports filed, with outreach sessions to the private sector.

Strengthening Current Measures — access to the case studies and red flag indicators, and more effective information sharing among competent authorities at the domestic level, for example allowing law enforcement agencies... [to] seek information from customs agencies on specific trade transactions in advance of a full-fledged criminal investigation.
2.What does it mean when the FATF places a jurisdiction under increased monitoring?
1. a)The country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring — the "grey list"
2. b)All jurisdictions are called upon to apply counter-measures against it
3. c)The country is expelled from the FATF
4. d)Its financial institutions are automatically sanctioned
Show the answer
Answer: (a) The country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring — the "grey list"
When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the "grey list".

Two elements — a commitment by the country, and agreed timeframes. Grey listing is cooperative rather than punitive.

Option B describes the black list, and overstates even that. For all countries identified as high-risk by FATF, the FATF calls on all members and urges all jurisdictions to apply enhanced due diligence, and, in the most serious cases, countries are called upon to apply counter-measures.

Enhanced due diligence generally; counter-measures only in the most serious cases.

Options C and D invent consequences. Listing does not expel a country or automatically sanction its institutions; it changes what other jurisdictions' firms must do.

How listing happens: if a country repeatedly fails to implement FATF Standards then it can be named a Jurisdiction under Increased Monitoring or a High Risk Jurisdiction. These are often externally referred to as "the grey and black lists".

And who decides: the FATF's decision-making body, the FATF Plenary, meets three times per year and holds countries to account if they do not comply with the Standards.

Assessments are shared: countries and jurisdictions are assessed with the help of nine FATF Associate Member organisations and other global partners, the IMF and World Bank.

What the listings mean in practice for a regulated entity. Third-party reliance requires that the third party is not based in a country or jurisdiction assessed as high risk; correspondent banking demands caution with jurisdictions which have strategic deficiencies; and enhanced due diligence must be applied to persons from countries for which this is called for by the FATF.
3.Into how many areas are the 40 FATF Recommendations divided, and what does the first Recommendation cover?
1. a)Four areas; Recommendation 1 covers the money laundering offence
2. b)Seven areas; Recommendation 1 covers assessing risks and applying a risk-based approach
3. c)Nine areas; Recommendation 1 covers customer due diligence
4. d)Two areas; Recommendation 1 covers international cooperation
Show the answer
Answer: (b) Seven areas; Recommendation 1 covers assessing risks and applying a risk-based approach
The 40 Recommendations are divided into seven distinct areas: AML/CFT Policies and coordination · Money laundering and confiscation · Terrorist financing and financing of proliferation · Preventive measures · Transparency and beneficial ownership of legal persons and arrangements · Powers and responsibilities of competent authorities and other institutional measures · International cooperation.

Seven, labelled A to G.

**And Recommendation 1 is Assessing risks & applying a risk-based approach, the first entry under A – AML/CFT POLICIES AND COORDINATION.

Its position is not accidental: the cornerstone of the FATF 40+9 Recommendations is the risk-based approach which emphasizes the need for countries to identify and understand the money laundering and terrorist financing risks they are exposed to. This ensures they can prioritise their resources to mitigate risks in the highest risk areas.

Which is echoed in the IFSCA Guidelines, where the RBA is the primary thrust of these guidelines.

The distractors misplace real Recommendations. Money laundering offence is Recommendation 3 under area B; Customer due diligence is Recommendation 10 under D – PREVENTIVE MEASURES; and international cooperation is area G, Recommendations 36 to 40.

Nine belongs to a different count — the IX Special Recommendations on terrorist financing, which with the 40 give the 40+9 Recommendations.

The preventive measures area is the largest, running from 9 Financial institution secrecy laws through 10 Customer due diligence, 11 Record keeping, 12 Politically exposed persons, 13 Correspondent banking, 15 New technologies, 17 Reliance on third parties, 19 Higher-risk countries, 20 Reporting of suspicious transactions and 21 Tipping-off and confidentiality to 23 DNFBPs: Other measures.

That sequence is the structure of the IFSCA Guidelines.

Where this is taught

Free preparation for NISM Series IFSCA-01

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