FATF's New Disclosure Requirements to Impact Fintechs and Credit Card Firms

FATF's New Disclosure Requirements to Impact Fintechs and Credit Card Firms

 The global Financial Action Task Force (FATF) is set to introduce stringent disclosure requirements for cross-border transactions, which is expected to increase costs for credit card companies, payment aggregators, and fintech firms.

The FATF, a body committed to combating money laundering and terrorism financing, plans to enhance transparency by mandating real-time reporting on the senders and receivers of international funds. This move aims to support investigative agencies with timely information to bolster the global fight against illicit financial activities.

Indian authorities have expressed support for the FATF’s initiative, emphasizing the need for greater transparency while balancing privacy, transaction speed, and business efficiency. However, the industry has voiced concerns that the new requirements could lead to significant investments in technology and infrastructure, thereby increasing compliance costs.

A consultative forum on these new regulations is scheduled to take place in Mumbai in April next year. This forum will involve Indian financial institutions, regulators, and representatives from other FATF member countries to discuss the implications and implementation of the new rules.

The FATF’s updated Travel Rule guidelines require financial institutions and virtual asset service providers to disclose detailed information about cross-border transactions. This includes the sender’s name, account number, physical address, and national identity number. The information must be shared securely and promptly with relevant investigative authorities.

Previously, the Indian government had put on hold a proposal from the Budget FY23 that would have imposed a 20% tax collected at source (TCS) on overseas credit card spending above a certain threshold. This move had raised concerns among students studying abroad and high-net-worth individuals.

India is expected to hold a public consultation on the new disclosure requirements in April, aiming to ensure that the fintech sector and financial inclusion efforts are not adversely affected by the increased regulatory burden.

The FATF’s recent Mutual Evaluation Report (MER) for India, released in November 2023, will be officially published on September 19. Preliminary findings place India in the “regular follow-up” category, the highest rating among G20 countries, alongside the UK, France, and Italy.

India received top ratings in 37 out of 40 parameters evaluated by the FATF. While praised for its high level of technical compliance and progress in anti-money laundering and counter-terrorist financing efforts, the FATF noted areas for improvement, including expediting legal proceedings related to money laundering and strengthening preventive measures in non-financial sectors such as real estate, gems and jewelry, casinos, and professional services.

As the FATF's new disclosure norms move towards implementation, member countries will have a two- to three-year period to adapt and comply with the updated regulations.