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About The Financial Action Task Force

Context:

The recent removal of the United Arab Emirates (UAE) from the Financial Action Task Force (FATF) grey list has sparked optimism for investment landscapes, particularly in India’s Non-Banking Financial Companies (NBFCs).

Relevance:

GS II: International Relations

Dimensions of the Article:

  1. Impact of UAE’s Exit from FATF Grey List on Investments in Indian NBFCs
  2. Financial Action Task Force (FATF)

Impact of UAE’s Exit from FATF Grey List on Investments in Indian NBFCs

RBI Regulations in 2021:

  • A 2021 RBI circular delineated investment regulations for Non-Banking Financial Companies (NBFCs), categorizing investments from compliant and non-compliant FATF jurisdictions.

Restrictions on Non-Compliant Investments:

  • Investments from non-compliant jurisdictions faced restrictions, particularly in acquiring significant influence in Indian NBFCs.

UAE’s Removal from FATF Grey List:

  • The UAE’s exit from the FATF grey list simplifies investment pathways for UAE-based investors in Indian NBFCs.

Encouraging Cross-Border Investments:

  • The eased restrictions promote cross-border investments between India and the UAE, fostering growth in both countries’ financial sectors.

Reduced KYC Requirements for FPIs:

  • The UAE’s removal may lead to reduced Know Your Customer (KYC) requirements for Foreign Portfolio Investments (FPIs), potentially doubling FPI inflows into India.

Economic Growth and FDI:

  • The exit of the UAE from the grey list may attract increased Foreign Direct Investment (FDI), contributing to economic growth in both regions.

Competition, Innovation, and Increased Investments:

  • The heightened competition between the two regions could drive innovation, attracting more investments and creating a conducive environment for economic development.

Financial Action Task Force (FATF)

  • The Financial Action Task Force (on Money Laundering) (FATF) is an intergovernmental organisation founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
  • In 2001, its mandate was expanded to include terrorism financing.
  • FATF is a “policy-making body” that works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
  • FATF monitors progress in implementing its Recommendations through “peer reviews” (“mutual evaluations”) of member countries.
  • Since 2000, FATF has maintained the FATF blacklist (formally called the “Call for action”) and the FATF greylist (formally called the “Other monitored jurisdictions”).
  • The objectives of FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

FATF Greylists

  • FATF greylist is officially referred to as Jurisdictions Under Increased Monitoring.
  • FATF grey list represent a much higher risk of money laundering and terrorism financing but have formally committed to working with the FATF to develop action plans that will address their AML/CFT deficiencies.
  • The countries on the grey list are subject to increased monitoring by the FATF, which either assesses them directly or uses FATF-style regional bodies (FSRBs) to report on the progress they are making towards their AML/CFT goals.
  • While grey-list classification is not as negative as the blacklist, countries on the list may still face economic sanctions from institutions like the IMF and the World Bank and experience adverse effects on trade.
  • Unlike the next level “blacklist”, greylisting carries no legal sanctions, but it attracts economic strictures and restricts a country’s access to international loans

FATF Blacklists

  • FATF Blacklists is Officially known as High-Risk Jurisdictions subject to a Call for Action.
  • FATF blacklist sets out the countries that are considered deficient in their anti-money laundering and counter-financing of terrorism regulatory regimes.
  • The list is intended to serve not only as a way of negatively highlighting these countries on the world stage, but as a warning of the high money laundering and terror financing risk that they present.
  • It is extremely likely that blacklisted countries will be subject to economic sanctions and other prohibitive measures by FATF member states and other international organizations.

-Source: The Hindu


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