FATF Recommendations
What FATF Is
The Financial Action Task Force (FATF) is an inter-governmental body that sets the international standard for anti-money laundering (AML), counter-terrorist financing (CTF), and counter-proliferation financing. Its 40 Recommendations are recognised by over 200 jurisdictions as the baseline framework for AML/CTF legislation and regulation.
FATF does not directly regulate funds or fund managers. Instead, its Recommendations are implemented through national legislation — in the UK through the Proceeds of Crime Act and the Money Laundering, Terrorist Financing and Transfer of Funds Regulations; in the EU through the Anti-Money Laundering Directives (AMLDs); and in the US through the Bank Secrecy Act and FinCEN rules. Fund managers and their administrators are subject to these national-level rules, which are themselves based on FATF standards.
What the Recommendations Cover
The FATF Recommendations address a broad range of AML/CTF obligations. For alternative fund operations, the most relevant areas are:
Customer Due Diligence (CDD): FATF Recommendation 10 requires that financial institutions identify and verify the identity of their customers before establishing a business relationship. For funds, this means Know Your Customer (KYC) obligations for all investors — including ultimate beneficial owner (UBO) identification.
Enhanced Due Diligence (EDD): Higher-risk customers — including politically exposed persons (PEPs), investors from high-risk jurisdictions, and complex ownership structures — require enhanced scrutiny and ongoing monitoring.
Beneficial ownership: FATF Recommendation 24 requires transparency of legal persons, including identifying the natural persons who ultimately own or control an investor entity. For funds, this means tracing through corporate and trust structures to identify the natural persons behind each LP.
Ongoing monitoring: AML obligations are not satisfied at onboarding alone. Ongoing monitoring of investor relationships, transaction monitoring, and periodic refresh of KYC data are required.
Record keeping: Documentation must be retained for a defined period (typically five years under most jurisdictions’ rules).
Note: FATF Recommendations are the international standard; the specific obligations for any fund or manager are set by the laws and regulations of the relevant jurisdiction(s). This source note is not legal or regulatory advice. Compliance teams and legal counsel should determine the applicable rules for each fund.
Why It Matters for Alternative Fund Operations
Investor onboarding: The FATF framework is the international basis for the KYC and AML obligations described in onboarding and KYC. The eight-stage onboarding lifecycle, document requirements, and UBO identification steps in that file are all grounded in FATF-derived regulatory requirements.
Subscriptions: The link between subscriptions and KYC is direct: an investor cannot be admitted to a fund and cannot fund a capital call until KYC is complete and approved. Failed or incomplete KYC is one of the principal subscription failure modes.
Operational risk: AML breaches represent a significant operational risk category for alternative fund managers. The historical examples of operational failures in that file include AML failures as a class of event.
LP register and fund governance: FATF-derived beneficial ownership requirements affect how the LP register is constructed and maintained in limited partnerships — each LP entry must ultimately trace to identified natural persons at the beneficial ownership level.
Relevant Local Files
Source Verification Note
The FATF Recommendations are publicly available from FATF’s website. This source note describes the framework at a conceptual level relevant to alternative fund operations. The specific AML/CTF obligations for any fund depend on the laws and regulations of the relevant jurisdiction(s) and should be verified with qualified legal and compliance counsel. FATF periodically updates its Recommendations and guidance; the current version should be consulted at the source URL above.