Enhancing AML/CFT Measures: Insights from FATF's Public Consultation on Financial Inclusion

Access to formal financial services remains out of reach for a significant portion of the global population, particularly those in low-income, displaced, or undocumented situations. Financial systems are meant to support economic access and stability, yet they often create obstacles that shut out the individuals who would benefit most from inclusion.

This exclusion poses an increasing challenge to the effectiveness of Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) frameworks. Informal financial channels, often used by unbanked individuals, are difficult to track and susceptible to misuse.

Recent data suggests that more than 1.4 billion people worldwide remain unbanked, which signals an urgent need for more inclusive regulatory models. Responding to this need, the Financial Action Task Force (FATF) released updated guidance in February 2025. 

The consultation emphasizes financial inclusion as a core strategic element in strengthening AML/CFT systems, backed by a call for proportionate, risk-based controls. This blog outlines the key updates from FATF’s revised guidance, its implications for compliance practices, and how financial institutions can align with this change toward inclusive, risk-sensitive monitoring.

Understanding Anti-Money Laundering and Financial Inclusion

Anti-money laundering (AML) refers to rules and procedures that stop illegal funds from being passed off as lawful income. Traditionally, it has involved strict identity checks, regular monitoring, and significant compliance costs for strict regulatory compliance.

Though these systems may work theoretically, they can unintentionally discourage marginalized communities from using formal financial services. The 2025 FATF guidance takes a different approach, recognizing that financial exclusion creates opportunities that criminal networks can exploit.

When individuals lack access to formal banking, they use unregulated and less transparent options. These informal channels are difficult to track and are commonly used for money laundering.

Integrating financial inclusion into Anti-Money Laundering measures doesn’t mean compromising on monitoring. Instead, it means designing controls that are proportional to risk, particularly for low-risk users and services. This balance can reinforce transparency while expanding access, a win for compliance and community development.

Highlights from the FATF’s Updated Anti-Money Laundering Guidance

The FATF’s updated guidance is aimed at refining how countries and financial institutions apply anti-money laundering and counter-terrorism financing (AML/CFT) standards. 

The points below highlight the key areas of focus and adjustment:

1. Promote Proportionality in Anti-Money Laundering Controls

The term “commensurate” has been replaced with “proportionate” in FATF standards to make it clear that anti-money laundering measures should match the level of identified risk. This change supports more flexible application of controls, particularly in low-risk financial scenarios such as small-value digital wallets or limited-functionality accounts.

2. Mandate the Encouragement of Simplified Measures

The guidance now instructs jurisdictions to allow and support simplified Anti-Money Laundering measures in lower-risk settings. This allows financial institutions to use more workable compliance methods for underserved populations.

3. Reinforce the Link Between Financial Inclusion and Integrity

The update identifies financial exclusion as a risk to the stability of the financial system and emphasizes that expanding access to regulated services is a key part of anti-money laundering efforts. It supports bringing vulnerable groups into the system rather than leaving them out.

4. Establish Risk-Based Flexibility for Identity Verification

Acknowledging that many unbanked individuals lack formal identification, the updated guidance supports tiered identity verification. This can include the use of digital IDs or progressive documentation requirements, balancing inclusion with Anti-Money Laundering objectives.

5. Enable Remote and Non-Face-to-Face Onboarding

Recognizing the role of digital finance, especially after the pandemic, the guidance clarifies that non-face-to-face financial onboarding is not inherently high-risk when paired with proper safeguards. This supports broader adoption of digital anti-money laundering frameworks.

6. Discourage the Practice of De-Risking Entire Customer Segments

FATF explicitly identifies de-risking as contrary to the risk-based approach. The guidance calls for financial institutions to avoid wholesale exclusions of sectors like NGOs, migrant workers, or low-income individuals, and instead assess customers individually based on actual risk.

7. Support Integration of Anti-Money Laundering and Financial Inclusion in National Strategies

Countries are encouraged to align their AML/CFT frameworks with financial inclusion goals. This includes integrating financial exclusion as a factor in National Risk Assessments and designing policy responses that address access gaps while managing risk.

8. Encourage Use of Technology and Data to Enhance Risk Assessments

The FATF guidance recommends that both public and private sector stakeholders use data and analytics to refine their understanding of customer risk. Tools such as transaction pattern analysis, heat maps, and scenario-based monitoring can help apply Anti Money Laundering controls more efficiently without stressing the low-risk customers.

Implementing Risk-Based Anti-Money Laundering Measures in Practice

To translate policy into action, the FATF outlines how the risk-based approach (RBA) can be embedded across regulatory frameworks, institutional operations, and public financial systems.

Below are eight practical approaches stakeholders can take to implement anti-money laundering controls that are both effective and inclusive.

1. Embedding Financial Exclusion Analysis in National AML/CFT Risk Assessments

Governments should explicitly analyze the impact of financial exclusion when conducting National Risk Assessments. This involves identifying which groups are unbanked or underserved, understanding why they are excluded, and evaluating how exclusion increases systemic anti-money laundering vulnerabilities.

2. Digitizing Public Payments with Embedded Simplified Due Diligence

Transforming government-to-person (G2P) payments, such as pensions, social welfare, or subsidies, into digital disbursements linked to regulated accounts can promote access. When these accounts are designed for limited, low-risk use, simplified due diligence requirements can be applied without compromising monitoring.

3. Designing Product-Specific Anti-Money Laundering Controls Based on Functional Risk

Financial institutions should customize their anti-money laundering measures to the specific design and use of each financial product. For example, mobile wallets with low transaction limits and restricted transfer functions can support simplified compliance for first-time users or lower-income segments.

4. Leveraging Customer Risk Segmentation Through Data and Analytics

Using internal data, banks and fintechs can develop behavioral risk segmentation models. These allow them to differentiate between higher- and lower-risk users based on transactional patterns, geography, and account usage, facilitating more dynamic and responsive compliance frameworks.

5. Enabling Remote Onboarding Through Secure Digital Identity Verification

With appropriate safeguards, remote onboarding is now recognized as a viable method for customer acquisition. Institutions should deploy digital identity systems, biometric, document-based, or multi-factor authentication for securely verifying identity while reducing barriers to entry for remote or rural populations.

6. Clarifying Regulatory Expectations Around Simplified Compliance Measures

Supervisors should issue written guidance, toolkits, or compliance templates that clearly explain when simplified measures are acceptable. Transparent communication reduces institutional hesitancy and supports more confident application of simplified due diligence in appropriate contexts.

7. Establishing Tiered Know Your Customer (KYC) Frameworks for Graduated Access

Offering basic accounts with minimal onboarding and then gradually applying more due diligence as activity grows lets institutions create a balance between access and monitoring. It opens the door for underserved users while keeping systems adaptable and monitored as needs transform.

8. Promoting Industry Collaboration Through Shared Risk Assessment Models

In jurisdictions where capacity is limited, collaborative efforts between regulators, banks, and service providers can support standardized risk assessment tools. Shared approaches, especially for products designed for inclusion, can streamline onboarding and reduce compliance duplication.

Integrating Financial Inclusion as a Strategic AML/CFT Imperative

The 2025 FATF update puts unprecedented emphasis on financial inclusion as a structural component of effective anti-money laundering strategies. It goes beyond prior guidance by embedding inclusion into the architecture of risk-based compliance frameworks, while offering concrete direction to regulators, supervisors, and institutions.

Redefining Financial Inclusion for AML/CFT Impact

Financial inclusion now encompasses usage, appropriateness of services, and financial literacy. FATF recognizes that individuals or entities may technically have access to regulated services but remain underserved due to design flaws, cost, lack of trust, or operational barriers. 

These gaps affect AML/CFT effectiveness by pushing users toward complicated, high-risk alternatives. For example, 500 million mobile money accounts worldwide were used monthly last year, highlighting product relevance and utility issues. 

Addressing Structural and Regulatory Drivers of Exclusion

The guidance highlights how national policies and compliance cultures can unintentionally deepen exclusion. For instance, complex ID requirements or visa-linked account closures disproportionately affect undocumented migrants, asylum seekers, and displaced individuals. 

These exclusions impact daily survival and raise the likelihood of misuse by illicit groups, including cases of forced financial involvement. FATF encourages governments to remove legal and regulatory hurdles, support civil registration systems, and scale inclusive digital identity frameworks to ensure equitable access.

Responding to De-Risking with Targeted Monitoring

The updated guidance makes it clear that eliminating entire groups or sectors from financial services is not in line with FATF Standards. It outlines how regulators and banks can respond with targeted risk assessment tools, enhanced supervision, and case-by-case mitigation measures.

Examples from various advanced countries highlight how national strategies, including public statements and regulatory revisions, have been used to discourage de-risking and restore services to vulnerable but legitimate customer segments.

Reinforcing Risk Understanding Through National and Institutional Assessments

To operationalize proportionate compliance, countries and institutions are urged to develop granular risk assessments that differentiate between high-risk, lower-risk, and underserved groups. This includes evaluating product-level and behavioral risks, contextual economic data, and evidence of vulnerability to financial crime.

FATF now also promotes the use of tools that assess financial products intended to promote inclusion and guides whether simplified due diligence is justified.

How Lucinity’s Anti-Money Laundering Tools Support Proportionate Compliance and Financial Inclusion

Lucinity offers compliance teams the tools to apply anti-money laundering standards without creating unnecessary barriers for low-risk customers. As FATF emphasizes proportionality and simplified measures in its 2025 update, Lucinity’s configurable platform helps institutions enhance monitoring while supporting access.

Transaction Monitoring: Lucinity’s transaction monitoring system combines predefined scenario-based detection with AI-powered behavioral analytics to ensure comprehensive, real-time AML coverage. Compliance teams can build or adjust detection logic without coding to align with transforming regulatory expectations.

Features like alert prioritization, snooze, and backtesting support efficient investigations, making applying FATF-recommended proportional monitoring across diverse customer risk profiles easier.

Customer 360: Instead of treating customers as static risk profiles, Lucinity’s Customer 360 feature builds a dynamic view of each individual or entity. It connects transaction data, behavioral patterns, and contextual insights into a single timeline. 

This changing risk view enables smarter decisions on when to escalate due diligence and when simplified approaches remain appropriate, particularly useful in serving underserved or digitally onboarded users.

SAR Manager: Suspicious Activity Report (SAR) generation is a resource-intensive task, especially for institutions working in emerging markets. Lucinity’s SAR Manager automates key parts of the reporting process, pre-filling data and guiding teams through narrative creation. 

This efficiency allows compliance teams to concentrate on high-value investigations while still meeting regulatory standards, even when using simplified onboarding for low-risk clients.

Conclusion

The FATF’s 2025 update reinforces the importance of aligning anti-money laundering frameworks with practical, risk-based strategies that support financial system integrity without creating undue barriers to access.

This approach strengthens the ability of financial institutions and regulatory bodies to distinguish between high-risk and low-risk contexts, enabling targeted application of controls. In doing so, it reduces the reliance on informal channels, improves transparency, and promotes trust in the financial system.

1. FATF’s latest updates clarify that simplified due diligence in low-risk scenarios should be encouraged.
2. Unbanked populations are more exposed to unregulated channels, making exclusion itself an anti-money laundering vulnerability.
3. Digital identity, data analytics, and risk-adaptive tools are central to managing Anti Money Laundering effectively and inclusively.
4. Financial institutions are expected to assess risk individually, not collectively exclude groups based on assumptions.

To explore how your institution can implement smarter anti-money laundering compliance that doesn’t leave people behind, visit lucinity.com.

FAQs

1. What does the FATF 2025 update mean for anti-money laundering procedures?
The FATF now mandates that anti-money laundering measures be proportionate to risk, encouraging simplified checks for low-risk customers.

2. How can anti-money laundering be applied without excluding vulnerable populations?
Tiered onboarding, digital identity systems, and flexible monitoring tools allow institutions to meet anti-money laundering requirements while expanding financial access.

3. Why is financial inclusion important for anti-money laundering?
Inclusion brings transactions into the regulated space, reducing reliance on informal channels and strengthening overall anti-money laundering system visibility.

4. Can technology help with anti-money laundering in low-risk scenarios?
Yes, tools like behavior-based monitoring, risk profiling, and digital identity verification allow for effective compliance tailored to customer context.