Mutual Evaluations

It is essential to the effectiveness and credibility of the mutual evaluation process that the UFA effectively monitors members’ progress in responding to the deficiencies identified in their mutual evaluation report (MER) in a timely manner.

As an Associate Member of the FATF, the UFA is required to have follow-up procedures similar to those of the FATF. These procedures are based on the FATF’s, but have been adapted to suit the specific needs and nature of the UFA’s membership and current levels of implementation in the region, and bearing in mind also practical/resource considerations and other existing processes.

The key principles of effective follow-up procedures include:

• Follow-up should require evaluated members to rectify the deficiencies identified in the MER and to implement the recommendations made, focusing on the 16 core/key FATF Recommendations (rated PC or NC) and ,as applicable, those non-core/key Recommendations (rated PC or NC) that are directly relevant to addressing the major ML/TF risks identified in the MER2;
• Three to four years following adoption of the MER is a reasonable timeframe for full implementation of measures to address the major deficiencies;
• Mechanisms to encourage compliance with the FATF Recommendations include regular progress reporting and a set of enhanced follow-up measures, including expedited reporting if needed;
• Members with more robust AML/CFT systems and fewer PC/NC ratings for the 16 core/key FATF Recommendations in their MER are subject to less onerous processes that exert less pressure, and vice-versa;
• A risk-based approach will be taken, bearing in mind the size and nature of the UFA membership, time and resource considerations, and the overall ML/TF risk posed by a member, to focus more attention on those members that have significant deficiencies against the 16 core/key FATF Recommendation (i.e. over 10 PC/NC ratings) and pose a higher ML/TF risk;
• Follow-up reports by members on enhanced or regular-expedited follow-up are subject to peer review, i.e. are reviewed by a small team of experts from UFA members and observers so as to gauge the adequacy of post-ME implementation, with recommendations made to members regarding the mode of future follow-up and associated measures;
• A review team’s findings as to whether compliance with a particular FATF Recommendation is essentially equivalent to LC will generally be based on the deficiencies identified in the MER.3 These findings are not binding on future assessments;
• Follow-up processes will take into account other complementary processes designed to enhance compliance, including technical assistance and training, implementation planning assistance and actions taken under the FATF’s International Cooperation Review Group (ICRG) process. UFA review teams and the Secretariat will take into account ICRG review and monitoring reports and other processes as appropriate, but are not bound by the conclusions of an ICRG report; and
• The UFA will publish adequate information on the follow up process and members’ progress.

These 2nd Round Mutual Evaluation Follow-up Procedures 2013 apply to all MERs adopted in the second round of UFA mutual evaluations, i.e. including retrospectively to MERs adopted between 2005 and 2012.

Although ICRG and ME follow-up processes are complementary they serve different purposes. Analysis Reports will draw on any ICRG review report (prima facie, targeted or progress report) adopted by the FATF within the 12 months prior to the Annual Meeting. Although reliance will generally be placed on the analysis of compliance with the FATF Recommendations contained in the ICRG report(s), an UFA review team will not be bound by the conclusions of the ICRG report. The Review Team might need to update and complement the analysis contained in the ICRG report (e.g. where additional information is provided by the member or an ICRG action plan item does not cover all the essential criteria for a particular FATF Recommendation). UFA Analysis Reports of members’ progress will also take into account the targeted review exit procedures and priorities identified for follow-up monitoring.

There are three possible follow-up processes members can apply, on or after the time of adoption of a MER, to give substance to the principles outlined above, namely:

a) Biennial update (or “reduced follow-up”);
b) Regular follow-up; and
c) Enhanced follow-up.

Criteria: Biennial update will apply in the following two circumstances:

a) When a member’s MER is adopted with either C or LC ratings for the six core FATF Recommendations, i.e. no PC/NC ratings, and if members agree; or
b) At any other time (i.e. at a subsequent Plenary) if members decide a member has taken ‘sufficient action’ to be considered for removal from regular follow-up. For ‘sufficient action’ to be shown, members would have to be satisfied that the member has an effective AML/CFT system in force, with the member having implemented the six core FATF Recommendations at a level essentially equivalent to a C or LC, taking into consideration that there would be no formal re-rating. Such a decision needs to be supported by a detailed Analysis Report prepared by a Review Team.

Frequency: Biennial updates involve the submission of progress reports every two years, with the first report submitted no later than two years after the adoption of the MER and further updates provided every two years thereafter.

Analysis: Biennial update reports will generally not be subject to any detailed analysis but only to a limited review by the UFA Secretariat, except in cases where the limited review indicates a lack of satisfactory progress, in which case a more detailed report would be prepared by the Secretariat (see also paragraph 18 (b) below). A draft of the Secretariat review will be sent to the evaluated member for comment before being provided to all UFA members and observers, together with the member’s biennial update report, ahead of the Annual Meeting.

Criteria: Regular follow-up will apply where the MER shows significant deficiencies in the member’s AML/CFT system. This process will apply in two circumstances:

a) Where any of the six core FATF Recommendations are rated either PC or NC; or
b) Where members so decide.

Frequency: Where members agree that there should be regular follow-up, they should also decide which steps a member should take to report. The following standard process will apply (unless members decide to apply an expedited reporting timetable per paragraphs 27(a)(ii) and paragraph 35 below):

a) First year – Members receiving fewer than 10 NC/PC ratings on the 16 core/key Recommendations are not required to submit a ME follow-up progress report at the first Annual Meeting after adoption of the MER, reflecting the better ratings achieved (and to ensure that more time is given for scrutiny of members with lower ratings at the Annual Meeting). However, in the interests of transparency and accountability members in that category are nevertheless strongly encouraged to report on their post-MER implementation planning at the Annual Meeting. Members are strongly encouraged to use the UFA Strategic Implementation Planning (SIP) Framework for that purpose.

b) Members receiving 10 or more NC/PC ratings on the 16 core/key Recommendations will normally be required to submit their implementation plan and an expedited second year progress report (see (c) below), unless members decide otherwise (e.g. on the basis of low risk).

c) Second year – Members with fewer than 10 NC/PC ratings on the 16 core/key Recommendations are required to report on actual implementation against all FATF Recommendations in the MER with either NC or PC ratings. Members under expedited reporting per paragraph (b) above are required to provide a detailed progress report against all MER recommendations per paragraph (d) below.

d) Third year Detailed Progress Report – Members with fewer than 10 NC/PC ratings on the 16 core/key Recommendations are required to provide a detailed progress report against all MER recommendations with full supporting documentation. Members under expedited reporting are required to provide a further progress report with the scope of and deadline for the report to be decided by members (see paragraph (e) below).

e) Subsequent years – Scope of and deadline for report to be decided by members. At a minimum a member will need to submit a progress report on the core/key Recommendations still at NC/PC level of compliance, as well as on those non-core/key Recommendations rated NC/PC that have been identified as major ML/TF risks in the MER or subsequent ME follow up analysis reports.

Analysis: First and second year reports will generally not be subject to any detailed analysis but only to a limited review by the UFA Secretariat, except in cases where the limited review indicates a serious lack of progress, in which case a more detailed report would be prepared by the Secretariat. A Secretariat analysis report will not contain any findings on ratings and will be provided to the evaluated member for comment before being provided to all UFA members and observers, together with the member’s progress report, ahead of the Annual Meeting.

Third Year Detailed Progress Reports to be subject to Independent, Full Analysis: Where a member is submitting their Third Year Detailed Progress Report, the following process will apply:

a) A detailed analysis will be undertaken by a Review Team made up of 2 – 4 experts, with each Review Team supported by the UFA Secretariat. In forming a Review Team, the Secretariat will seek to involve former ME team members and/or other experts experienced in the Assessment Methodology. The review will be a paper-based “desk review”. The analysis and recommendations to members (see paragraph 28 below) will be made by the Review Team as a whole.

b) The Review Team will analyse actions taken to address deficiencies/factors underlying each of the 16 core/key Recommendations rated PC or NC. The Review Team will indicate the extent to which the deficiencies have been resolved, and indicate whether sufficient progress has been made. ‘Sufficient progress’ has been made when the member has implemented a Recommendation at a level essentially equivalent to a C or LC using the FATF AML/CFT Assessment Methodology 2004, but taking into consideration that there would be no formal re-rating. In assessing whether sufficient progress had been made, effectiveness would be taken into account (to the extent possible in a desk-based review).

c) The Review Team will also examine, where applicable, non-core/key FATF Recommendations rated either PC or NC, particularly if any have been identified as a major ML/FT risk in the MER. Findings as to whether a non-core/key Recommendation has been implemented at a level essentially equivalent to LC will only be made in cases where a member has requested to exit the regular follow-up process and move to biennial reporting.

d) The Review Team will prepare an Analysis Report which will be sent to the evaluated member for comment before being provided to all UFA members and observers, together with the members’ Detailed Progress Report, ahead of the Annual Meeting. In the final version of the Analysis Report, the evaluated member will be given the opportunity to respond to the findings of the Analysis Report in a concise and focused manner (in a format of an extra section at the end of the Analysis Report).

Subsequent year progress reports prepared under the regular follow-up process will normally be subject to analysis by the Secretariat, though members may decide that a Review Team should be retained or formed to prepare an Analysis Report if it has concerns about the member’s level of progress (in these circumstances the member would normally also be requested to submit an expedited further progress report). Members seeking to move from regular to biennial follow-up are always required to submit a detailed progress report which will be subject to detailed analysis by a Review Team, so that a decision can be made as to whether ‘sufficient progress’ has been made in relation to the six core FATF Recommendations. The Secretariat or Review Team analysis of members’ subsequent year progress reports will address the core/key Recommendations still at a NC/PC level of compliance, as well as the non-core/key Recommendations rated NC/PC that have been identified as major ML/TF risks in the MER or subsequent ME follow up analysis reports.

Criteria: Members may, at any stage, including on adoption of the MER, decide to subject an evaluated member to enhanced follow-up if the evaluated member has serious failings in its implementation of the FATF standards.

Analysis: The analysis leading to a recommendation to either subject or remove a member from enhanced follow-up will include the MER results at adoption; any detailed Analysis Report by a Review Team or the Secretariat during the regular or enhanced follow-up process; any ICRG reports and findings, and other analysis as directed by members.

The REVISED SECOND ROUND MUTUAL EVALUATION FOLLOW-UP PROCEDURES 2013  are available via the Documents section of this website under Mutual Evaluations - Policy and Procedures - 2nd Round.