FATF Greylisting and Financial Inclusion

Around 1.4 billion people worldwide still lack access to basic financial services, leaving them excluded from the formal economy. Financial exclusion not only undermines sustainable development goals (such as poverty and inequality reduction and economic growth) but also poses serious challenges to the fight against financial crime. When individuals are excluded from a regulated financial system, their economic activities become harder to trace and protect, which both creates blind spots that can be exploited by illicit actors and can make unserved and underserved people and entities more vulnerable to crimes. The Financial Action Task Force (FATF), the global standard-setter on anti-money laundering (AML), countering the financing of terrorism (CFT) and counterproliferation financing (CPF), has long acknowledged that financial integrity and inclusion must advance hand in hand, and should be complementary objectives of the global AML/CTF system. Yet, in practice this is hard to achieve.

Greylisting is one context in which this tension becomes particularly visible. Through its International Co-operation Review Group (ICRG) process, the FATF ‘identifies countries with ‘strategic deficiencies’ in their AML/CFT frameworks, resulting in two lists of countries that do not meet FATF Standards. One of these lists, commonly known as the ‘greylist’, or list of ‘jurisdictions under increased monitoring’, requires listed countries to make a high-level commitment to address their deficiencies. Each greylisted country agrees to a time-bound Action Plan with FATF / relevant FATF-style regional bodies (FSRBs) to address deficiencies and meet FATF Standards.

While the purpose of the Action Plan is to strengthen a country’s AML/CTF framework, the pressure to exit the greylist as soon as possible, given the reputational, operational and economic pressures associated with remaining on the list, creates incentives to exit as quickly as possible.1.  Faced with this pressure, governments and financial institutions may adopt highly risk‑averse compliance practices in an effort to minimise perceived exposure. Such responses, in turn, have important implications for financial inclusion, an area that has been discussed conceptually but has not yet been systematically researched.

Previous research, including by RUSI, has highlighted the gap in evidence about the impact of the greylisting process on financial inclusion. Although individual countries and international institutions, such as the World Bank, collect data on financial inclusion, no consistent quantitative evidence directly assesses how greylisting affects inclusion at country level.

This paper examines the impact of FATF greylisting on financial inclusion. It argues that the most notable effects arise indirectly, through the pressure on countries to implement an Action Plan and exit the greylist. It shows how, in practice, this pressure can generate higher compliance costs, banking sector retrenchment and de-risking, with knock-on consequences for access to financial services. The paper explores how countries can minimise any negative impact on financial inclusion when they are required to implement their Action Plans in order to exit the greylist. The paper uses Nigeria as a main case study, as the country combines an ambitious financial inclusion agenda with repeated episodes of greylisting, but also draws on author interviews with financial inclusion experts and representatives from a range of other previously greylisted countries including the Philippines, Indonesia, Kenya, Ghana, Pakistan and Tanzania.

The paper first examines the conceptual and policy relationship between financial integrity and financial inclusion, before analysing how FATF Standards and the greylisting process shape incentives around inclusion. It then draws on the case study of Nigeria, alongside insights from other jurisdictions, to demonstrate the practical impact of greylisting on financial inclusion. Finally, the paper offers policy recommendations for the FATF and national authorities.

The Importance of Aligning Financial Inclusion and Financial Integrity Efforts

The advent of the internet, mobile phones and digital financial services has significantly advanced financial inclusion, enabling millions of people to access financial services. According to the latest World Bank Global Findex, as of 2024 approximately 79% of adults worldwide had an account at a bank or similar financial institution, with a mobile money provider, or both. This marks an increase since 2021 of 5% globally and 6% in low- and middle-income countries. Yet, despite this, 1.4 billion people still lack access to basic formal financial services.

However, access to an account alone does not equate to true financial inclusion. The FATF’s understanding of ‘financial inclusion’ has evolved from a narrow focus on access to financial services towards a more comprehensive view that includes ‘appropriate usage and quality of those services and products, financial literacy, financial resilience, and financial well-being of end-users’. This updated definition recognises access and usage as the two main pillars of financial inclusion, which this paper also adopts. However, it should be noted that some experts argue a definitional gap remains when it comes to evaluating the ‘utility’ of financial services – that is, how access to / usage of financial services translates into tangible improvements in individuals’ economic and social outcomes, such as increased food security and climate resilience.

The significance of financial inclusion is, in essence, twofold. First, inclusive finance is crucial for economic growth, poverty alleviation and development. Scholars such as Soon Suk Yoon, Ingyu Oh and Shawn S Park have argued that higher levels of countries’ investment in financial inclusion mitigate gender and income group disparities. Access to financial services enables low-income households to undertake basic financial activities such as saving, accessing credit and obtaining insurance. Second, from the viewpoint of financial sector integrity, exclusion conversely drives ‘financial activity into unregulated channels’, which undermines AML/CFT efforts and can increase excluded groups’ vulnerability to crime.

Thus, aligning financial integrity and inclusion approaches is essential. When implemented in isolation or without sufficient integration, these policy objectives can undermine each other – either by restricting access to inclusive financial products in the name of integrity measures, or by promoting inclusion without adequate safeguards, thereby potentially increasing exposure to money laundering (ML) and terrorist financing (TF) risks. Against this backdrop, FATF has, particularly in recent years, emphasised the importance of ensuring that AML/CFT measures complement financial inclusion objectives.

FATF Standards and the Financial Inclusion Agenda

Since 2009, the FATF itself has acknowledged that financial inclusion and AML/CFT are complementary policy objectives. This view was reaffirmed in its 2011 guidance and subsequent revisions (2013, 2017 and 2025). In 2019, the FATF formally articulated its commitment to ‘promote financial inclusion and encourage proportionate and effective implementation of the FATF Standards by countries in line with the risk-based approach’ (RBA).2.

Despite these commitments, the issue of financial inclusion remained relatively underemphasised in the FATF’s agenda until the early 2020s, when concerns about unintended consequences of the implementation of its standards such as financial exclusion and de-risking led the FATF to launch a dedicated workstream. With this increased attention, financial inclusion ultimately became one of the FATF presidency priorities from 2024 to 2026.

As a result, countries are now actively encouraged to advance inclusive finance by strengthening the implementation of the RBA and applying AML/CFT/CPF measures proportionately to mitigate the risks. In practice, this means allowing simpler checks for low-risk customers, which can make it easier for low-income and excluded groups to access and use formal services. The renewed prioritisation and emphasis are seen across several key FATF documents – see box below.