The 4th Meeting of AFI’s Financial Integrity Working Group (FINTWG) was held in Lilongwe, Malawi on 9-10 May. It was opened with a keynote address from Reserve Bank of Malawi Deputy Governor Dr. Grant Kabango, who highlighted Malawi’s commitment to financial inclusion as well as the importance of protecting the integrity of the system.

The general theme of two-day meeting was the challenge of a risk-based approach, which is now recognized as key to attaining proportionate regulation, simplified due diligence and appropriate balance between integrity and inclusion.

A presentation from the Financial Action Task Force (FATF) was delivered with emphasis on impact of FATF recommendations  on financial inclusion including risk-based approaches, customer due diligence, money and transfer value services, wire transfers, and third party reliance. FATF reiterated its commitment to prevent any unintended negative effect of FATF requirements on access to financial services for unbanked groups and noted that it had taken concrete steps to achieve this, including the June 2011 release of a Guidance Note on Financial Inclusion.

Central Bank of Kenya (CBK) presented its recently completed mutual evaluation report and shared experiences with members on how financial inclusion was perceived during its assessment. Mexico, represented by the CBNV and the Ministry of Finance and Public Credit, shared the country’s risk management model. Mexico is currently developing a matrix scheme that allows for the weighting of specific risk variables of each of the products and services to be assessed. This methodology is then complemented with three levels of measurement (simplified, standard and enhanced) to match the risk assessment of each of the products and services.

The theme of appropriate risk management continued with the World Bank, which took part in the meeting as expert guest of FINTWG. The World Bank representative presented the financial inclusion component of its national risk assessment tool currently piloted in Kenya and Namibia.

Later rounds of intensive discussion further underlined the notion that risk assessment is ‘an art rather than a science’ with no one-size-fits-all solution for countries.  As a result, participants agreed that it is critically important to consider country-specific circumstances in defining various risk levels. Members came to a consensus on the need to establish a knowledge inventory by collecting country examples of low-risk products and services that measure how risk is identified. They also agreed to identify effective risk mitigation measures with the aim of creating a guideline for policymakers on how to create a framework for low risk products and services within their own jurisdictions. This peer learning and sharing exercise will assist countries in identifying the most suitable approach to categorizing their low risk products and services within a risk framework that can meet the FATF requirements. 

The working group will present the initial findings at their next meeting, which will be held in conjunction with the 2012 AFI Global Policy Forum in Cape Town, South Africa.