FATF ¦ 2022 5th Round Assessment Methodology (updated June 2025)

2022 Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT/CPF Systems (updated June 2025)

The Financial Action Task Force (FATF) plays a crucial role in safeguarding the global financial system against the risks posed by money laundering (ML), terrorist financing (TF), and proliferation financing (PF) — which involves the funding of weapons of mass destruction. In June 2025, FATF updated its comprehensive methodology used to assess countries’ compliance with its Recommendations and the effectiveness of their Anti-Money Laundering, Countering the Financing of Terrorism, and Countering Proliferation Financing (AML/CFT/CPF) systems. This article outlines key aspects of this updated 5th round assessment methodology, which started implementation in 2024.

Foundations of the FATF Methodology

The FATF Recommendations establish global standards and best practices to combat financial crimes. The Methodology provides a structured framework for independent assessors to evaluate two essential components:

1. Technical Compliance

   This analyzes whether a country’s laws, regulations, and institutional frameworks meet the specific requirements of the FATF Recommendations. It focuses on foundational elements such as legal provisions, competent authorities’ powers, and procedural frameworks.

2. Effectiveness

   This evaluates how well these frameworks work in practice to produce the expected outcomes in combating ML, TF, and PF. Rather than checking boxes, this assessment judges the real-world impact and operational success of AML/CFT/CPF systems.

Together, these components offer a holistic picture of a country’s adherence to international standards and its ability to protect its financial sector from abuse.

Key Principles Guiding Assessments

Risk and Context

The starting point for any evaluation is understanding a country’s specific ML/TF risks and contextual factors influencing those risks. This includes economic makeup, financial sector structure, presence of criminal or terrorist activities, level of financial inclusion or exclusion, and regulatory environment sophistication. Assessors analyze both the country’s own risk assessments and independent credible sources to form their judgments.

Understanding context is crucial because it guides where assessors focus their attention — prioritizing higher-risk sectors or activities for deeper scrutiny while recognizing areas of lower risk may require less intensive examination.

Sector Materiality and Weighting

Not all sectors within a country’s financial ecosystem hold equal risk or importance. Assessors assign weightings (high, moderate, low) to different sectors — such as banks, non-financial businesses, virtual asset service providers (VASPs), or informal markets — based on their size, risk exposure, and economic role. These weightings influence how compliance and effectiveness ratings are determined across the system.

Flexibility in Implementation

While the FATF Recommendations specify mandatory elements, countries have flexibility in how they implement these standards consistent with their legal and institutional frameworks. This accommodates differences in national systems while ensuring core requirements are met.

Risk-based approaches allow countries to apply enhanced or simplified measures depending on assessed risks. For example, where risks are low, some AML/CFT requirements may be relaxed — but countries must provide sound reasoning and evidence for such decisions.

Bastian Schwind-Wagner_Follow "The FATF 5th Round Methodology represents an advanced framework that balances detailed legal scrutiny with a pragmatic focus on real-world results. By combining technical compliance checks with robust effectiveness evaluations within a risk-sensitive context, it helps countries identify strengths and gaps in their fight against financial crime. As global risks evolve with new technologies and geopolitical challenges, this methodology will remain vital in protecting financial integrity worldwide."

Technical Compliance Assessment

Technical compliance is measured against criteria associated with each Recommendation. Ratings range from:

• Compliant: No shortcomings.
• Largely Compliant: Minor shortcomings.
• Partially Compliant: Moderate shortcomings.
• Non-Compliant: Major shortcomings.
• Not Applicable: Due to country-specific features.

Assessors evaluate not only whether laws exist but also whether competent authorities and institutional structures necessary for enforcement are in place and functioning adequately. Importantly, some deficiencies can cascade across multiple Recommendations if they affect fundamental components such as risk assessment or supervision.

Effectiveness Assessment

Effectiveness measurement moves beyond legal frameworks to assess actual achievement of eleven defined Immediate Outcomes that represent key goals of an AML/CFT/CPF system — ranging from identification and understanding of ML/TF risks, through investigation and prosecution of offenses, to asset recovery and prevention of terrorist financing.

Assessors answer two overarching questions for each Immediate Outcome:

• To what extent is the outcome achieved?
• What improvements are needed?

Ratings for effectiveness are:

• High Level: Outcome achieved to a very large extent.
• Substantial Level: Achieved to a large extent.
• Moderate Level: Achieved to some extent.
• Low Level: Not achieved or negligible extent.

This approach relies heavily on qualitative judgment supported by data and other information but recognizes that effectiveness is complex and context-dependent.

Integrated Analysis and Recommendations

The Methodology encourages assessors to integrate findings from both technical compliance and effectiveness assessments. While strong technical compliance is generally necessary for effectiveness, exceptions exist based on country circumstances or compensatory measures.

Based on their findings, assessors provide clear, prioritized recommendations aimed at improving both compliance and effectiveness. These recommendations are designed to be practical, flexible, outcome-oriented, measurable, and time-bound to assist countries in strengthening their AML/CFT/CPF regimes effectively.

Dive deeper

• FATF ¦ 2022 Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT/CPF Systems ¦ Link