March 20, 2018

The World Bank estimates[1] that two billion people, almost one third of the global population, are unbanked or underbanked. This group has either no access to financial services or must rely on family or unregulated and unsupervised ‘shadow banking’ alternatives. The United Nations, the World Bank and other public and private development institutions consider giving access to regulated financial services a major development goal. As financial inclusion is a key enabler for reducing poverty and boosting prosperity in the world, one can appreciate why.

Unfortunately, the unbanked and underbanked are often not able to comply with basic requirements to get access to the financial system. Aside from the obvious reason of not having (enough) money, many lack the ability to provide the proof of identity required to open an account. Consider in this light for example the plight of the hundreds of thousands of asylum seekers in Europe who fled war-torn regions. Despite many having economically viable skills, integration into their new communities is made more difficult without access to local financial services.

Providers of financial services such as banks are understandably reluctant to be lenient with respect to establishing prospective clients’ identity. Knowing with whom they are dealing is a core regulatory requirement to combat financial crime. As approximately 70% of the criminal money that is laundered every year passes through the financial sector[2] regulatory authorities are unlikely to ease the pressure to comply. How should the industry deal with this conundrum?

Fortunately, this dilemma is gaining broader recognition and pragmatic solutions are being developed and selectively tested. If we accept that bringing the unbanked and underbanked into the regulated financial arena will contribute to the prevention of financial crime, this also makes sense from a regulator’s perspective. The Financial Action Task Force (FATF) recently published a supplement to their 2013 guidance on AML/CFT measures and financial inclusion[3]. Also, at a recent Rotterdam School of Management symposium on International Security Management several creative solutions emerged from a workshop on this topic.

The products and services provided to newly banked people are often of an entry-level nature with limited functionality or with restricted use. If these products and services facilitate financial inclusion, proportionate and risk-based AML/CFT controls may be acceptable depending on the level of money laundering and terrorism financing risks. Biometric and other technology-based solutions and enhanced monitoring may also provide comfort, though stringent data protection and privacy measures will be needed to ensure data integrity and protection of the individuals’ privacy.

Basic services may thus be provided upon minimum identification, with access to subsequent services requiring additional identification and verification information.

Several countries are already experimenting and sharing their experiences actively. Given the importance of financial inclusion for promoting global prosperity it is encouraging to see the FATF taking a leading role to provide clarity and guidance.

Pieter van den Akker, March 2018


[1] World Bank, The Global Findex Database, 2014

[2] United Nations Office on Drugs & Crime, Report on Illicit Financial Flows, 2011

[3] FATF, Guidance Anti-Money Laundering and Terrorist Financing Measures and Financial Inclusion, November 2017