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Financial institutions that make rules on illicit financial flows and their impact on developing countries

Mary Ongore

Legal Manager Sustainable Finance

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Introduction

Taxation, finance and monetary systems are cited as the quintessential “sovereign” issues.
There are global institutions setting standards that have a huge influence on how the financial sector operates and tackle different elements of illicit financial flows.
These decision-making bodies wield significant influence over the international financial system.
The global standards agreed to often become codified into national laws in many developing countries that have no voice in the standard-setting processes.

FATF – Financial Action Task Force

FATF aims to address the use of the international financial system for money laundering and terrorist financing.
Despite FATF’s global reach, the vast majority of its permanent members are advanced economies, and only 8 of the 36 permanent members are from the Global South.
While FSRBs can give input, the FATF is the only standard-setting body.
FATF can place jurisdictions on its list of non-cooperative countries and territories.
This blacklisting can make it nearly impossible for a country to gain access to world markets, receive loans, or entice new investments.

Bank of International Settlements (BIS)

The BIS was created by a mix of government central banks and private US financial institutions.
It aims to support central banks' pursuit of monetary and financial stability through international cooperation and acts as a bank for central banks.
It collects a lot of data on how much money is held offshore. This information on where and how money is moving around the world is critical.
As of 2024, the BIS members are central banks of 63 jurisdictions: 34 in Europe, 16 in Asia, 5 in South America, 3 in North America, 3 in Africa, and 2 in Oceania
The BIS hosts the secretariat of the Financial Stability Board (FSB).

Basel Committee on Banking Supervision (BCBS)

The BCBS is the primary global standard setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters.
Basel Committee’s regulatory guidelines assess banking risks and bank capital requirements, and it sets out banking supervision principles intended to improve financial stability.
The Basel Committee comprises 45 members from 28 jurisdictions, with only one African country being a member.
The BCBS is a member of the Financial Stability Board (FSB) and participates in the FSB's work to develop, coordinate and promote the implementation of effective regulatory, supervisory and other financial sector policies. It also collaborates with FATF.

Financial Stability Board (FSB)

The FSB is the global agenda-setter on issues of financial stability, information exchange among authorities, and promotion of new financial standards and recommendations.
The Plenary is the sole decision-making body of the FSB.
The FSB has six regional consultative groups that meet regularly with non-members. However, the RCGs do not have a voice in the plenary, which is the sole decision-making body. Only 1 African country is a member of the FSB.
The BIS and OECD, BCSB, IOSCO, and IASB are members of the FSB. The FSI’s Committee on Payments and Market Infrastructures (CPMI) is also a member.

International Accounting Standards Board (IASB)

The IASB is the global accounting standard-setter.
Its aim has evolved from setting basic accounting standards to developing global norms on financial reporting.
IASB standards impact corporate financial disclosure and even financial regulation.
Many regions, including Latin America and the Caribbean, have welcomed international standards set by IASB.
The IASB is hosted at the IFRS Foundation, a private not-for-profit governed by a board of individuals. No board members represent governments, and of the 14 board seats, just one is allocated to Africa and one to Latin America.

International Organization of Securities Commissions (IOSCO)

IOSCO is the global standard setter for the securities regulation.
IOSCO has 131 members responsible for regulating more than 95% of the world’s securities markets.
It is governed by a board of 34 national regulators. While the global south accounts for 75% of the IOSCO membership, only 44% of the members are G20 countries.
It works intensively with the G20 and the Financial Stability Board (FSB) on the global regulatory reform agenda.

What is the ideal situation?

The End