Regulatory Discrepancies: Understanding the Differences Between FATF and EU High-Risk Country Lists

Abstract

This master’s thesis explores regulatory discrepancies between the Financial Action Task Force (FATF) and the European Union (EU) high-risk country lists, focusing on the reasons behind these differences and their implications for the European banking industry. The subject area is international financial regulation, with the specific topic on understanding the differences in the risk frameworks employed by FATF and the EU. The study aims to answer the primary research question: Why do the FATF and EU high-risk country lists differ, and what are the reasons behind? Additionally, the sub-question investigates: What are the challenges in the European banking industry with implementing the regulation? To address these questions, the research employs comparative methods to analyze similarities and discrepancies between the two lists, aiming to uncover the reasons behind. The material for the study includes official FATF and EU documentation, regulatory frameworks, and academic literature related to topic. The research has limitations, primarily due to reliance on publicly available sources. It focuses mainly on FATF and EU high-risk lists, which are subject to constant updates, meaning some information could become outdated with new regulations. The main results reveal differences between the FATF and EU list differ in their risk classification processes due to distinct objectives and governance structures; EU has its independent process alongside FATF. The study concludes that enhancing collaboration and harmonizing frameworks between FATF and the EU are critical to addressing these challenges and improving regulatory efficiency. This thesis contributes to the field of international financial regulation by offering a deeper understanding of the inconsistencies between the FATF and EU high-risk country lists and proposing pathways for improved cooperation to strengthen global efforts against financial crimes.