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Inclusion in FATF's Grey List Spurs Nepal's Financial Regulators to Implement Comprehensive Anti-Money Laundering Policies
In February 2025, the Financial Action Task Force (FATF) added Nepal to its list of jurisdictions under increased monitoring, commonly known as the "grey list," due to concerns about the country's ability to effectively combat money laundering and terrorist financing. This development has prompted Nepal's regulatory bodies to take swift and decisive actions to enhance their anti-money laundering (AML) frameworks.
Regulatory Responses
Nepal Rastra Bank (NRB): The central bank has issued directives to hire-purchase companies, mandating that they verify customer identities thoroughly before extending credit. Additionally, NRB has instructed these companies to cross-check clients against the Ministry of Home Affairs' watchlist to prevent transactions with individuals linked to illicit activities.
Securities Board of Nepal (SEBON): SEBON has directed investment companies engaged in secondary market trading to register with the board. This move aims to bring such entities under regulatory oversight, ensuring compliance with AML regulations. Companies are required to submit detailed information about their board members, updated articles of association, tax registration certificates, and profiles of executive officers as part of the registration process.
Insurance Regulatory Authority: Approximately a month ago, the authority instructed all insurance companies to establish specialized departments dedicated to AML and counter-terrorist financing (CFT) efforts. They were also mandated to appoint compliance officers and maintain staff continuity in these departments for at least two years to ensure consistency and effectiveness in AML/CFT initiatives.
Government Initiatives
The government of Nepal has demonstrated a high-level political commitment to address the strategic deficiencies identified by the FATF. This includes implementing legal, policy, and structural reforms to strengthen the country's AML and counter-terrorist financing frameworks.
Implications of Grey Listing
Nepal's inclusion in the FATF grey list signifies increased scrutiny of its financial practices on the global stage. This status can lead to challenges such as reduced foreign investment, higher transaction costs, and strained relationships with international financial institutions. Recognizing these potential repercussions, Nepal's regulatory bodies are proactively implementing measures to enhance compliance and work towards removal from the grey list.
The recent actions by Nepal's regulatory authorities reflect a concerted effort to strengthen the country's financial system and align with international AML standards. By addressing the concerns raised by the FATF, Nepal aims to restore confidence in its financial sector and foster a more transparent and secure economic environment.
