Anti-money laundering (FATF)

The rapid development of technology-driven financial services, increasing cross-border financial flows, and evolving international sanctions and regulatory requirements are creating new risks and challenges for the banking sector. These developments increase the potential exposure of banks to money laundering, terrorist financing and proliferation financing (ML/TF/PF) risks. Failure to effectively identify and mitigate these risks could lead to restrictions on correspondent banking relationships, disruptions to cross-border payments and access to international funding, and adverse consequences for the operations and reputation of financial institutions, as well as Mongolia’s international standing.

Therefore, it is essential to strengthen the effectiveness of the banking sector’s AML/CFT/CPF framework by enhancing risk identification and mitigation, building institutional capacity, and improving risk-based supervision in line with international standards and emerging risks. These measures will help safeguard Mongolia’s financial stability, ensure the continuity of cross-border payments and settlement services, and maintain confidence in Mongolia’s banking sector within the international financial system.

The Bank of Mongolia’s Medium-Term Strategy (2026–2030) aims to strengthen financial stability and promote data-driven supervision. As part of these priorities, the strategy focuses on strengthening the banking sector’s AML/CFT framework, addressing deficiencies identified in previous mutual evaluations, and preparing for the next FATF mutual evaluation. These include:

• Align the banking sector’s AML/CFT legal and regulatory framework with international standards and strengthen the professional capacity of sector personnel.
• Strengthening domestic and international cooperation in AML/CFT banking supervision, enhance information sharing and coordination, and improve the effectiveness of joint supervisory activities.
• Improve the framework for imposing effective, proportionate and dissuasive measures and sanctions for deficiencies and violations identified through AML/CFT supervision, including measures to prevent recurrence.
• Introduce supervisory tools and techniques, good practices to align the banking sector’s AML/CFT framework with international standards.

• Assess Mongolia’s AML/CFT/CPF framework against the technical compliance requirements of the FATF 40 Recommendations and the effectiveness requirements of the 11 Immediate Outcomes, update the National Risk Assessment (NRA), develop and implement an action plan to address identified risks and deficiencies in preparation for the next FATF Mutual Evaluation. In 2027, efforts will focus on assessing the banking sector’s technical compliance and effectiveness, identifying gaps, and implementing targeted remedial measures. This will include compiling and maintaining relevant statistics, supervisory findings, enforcement outcomes, and other supporting evidence to demonstrate the effectiveness of AML/CFT/CPF measures. Banking sector risks and supervisory priorities will also be reviewed and updated in line with the findings of the NRA and relevant national policy documents. These include:
• Conduct a self-assessment of the banking sector’s technical compliance and effectiveness against the FATF 40 Recommendations and 11 Immediate Outcomes, develop and implement an action plan to address identified deficiencies.
• Submit proposals to the competent authorities to update the National program based on the NRA findings.
• Establish a database of banking sector statistics, supervisory findings, corrective measures, and evidence of effectiveness required for the FATF Mutual Evaluation, ensuring regular updates.
• Implement phased improvements to the banking sector’s AML/CFT/CPF legal and regulatory framework, supervisory processes, and supervisory capacity.
• Strengthen domestic and international cooperation in AML/CFT/CPF banking supervision through enhanced information sharing to ensure coordinated preparations for the upcoming FATF Mutual Evaluation.
• Assess the implementation and effectiveness of AML/CFT legislation to strengthen the legal and regulatory framework. The increasing digitalization of financial services and introduction of new products have highlighted the need to clarify regulatory requirements relating to electronic Know Your Customer (e-KYC), politically exposed persons, beneficial ownership, and accountability. In response, a comprehensive review of existing legislation, regulations, and guidelines will be conducted to identify regulatory gaps, inconsistencies, and overlaps. Based on the findings, proposals for legislative and regulatory amendments will be developed in accordance with international standards, taking into account the outcomes of the NRA, and submitted to the relevant authorities for consideration. These include:
• Assess the implementation and impact of AML/CFT legislation, regulations and guidelines applicable to the banking sector, and prepare proposed amendments for submission to those authorized to initiate legislation.
• Develop AML/CFT regulatory requirements for electronic Know Your Customer (e-KYC) processes, including digital customer identification and identity verification.
• Develop proposals to clarify the definition and scope of politically exposed persons (PEPs), including family members and close associates; amend relevant regulations and submit proposed legislative amendments to those authorized to initiate legislation.
• Develop proposals to reduce the ownership threshold for identifying ultimate beneficial owners (UBOs) from 33% to 25%, including necessary legislative and regulatory amendments, for submission to the relevant authorities.
• Develop proposals to strengthen the framework for imposing effective, proportionate and dissuasive measures in response to violations identified through AML/CFT supervision, including measures to prevent recurrence, for submission to the relevant authorities.
• Enhance risk-based AML/CFT/CPF supervision. Banks are exposed to varying levels of ML/TF/PF risks arising from their customer profiles, products, services, geographic exposure, transaction activities, technologies, correspondent banking relationships, and exposure to international sanctions. Accordingly, supervisory resources will be prioritized based on assessed risks, with greater focus on higher-risk institutions, activities, and transactions. The effectiveness of risk-based supervision will be strengthened through improved coordination between off-site monitoring and on-site inspections, supported by data-driven supervisory tools to facilitate the timely identification of emerging risks and regulatory breaches. Particular supervisory attention will be given to cross-border payments, trade finance, sanctions evasion risks, and suspicious transaction reporting. These include:
• Assess banks’ implementation of UN Security Council sanctions and risks associated with third-country sanctions, while prioritizing supervisory oversight of sanction evasion risks, high-risk cross-border transactions, correspondent banking relationships, and trade financing activities.
• Update individual banks’ ML/TF risk profiles and improve methodologies and tools for assessing customer, product, geographic, transaction and technology risks, as well as the implementation of risk mitigation measures, to support risk-based supervision.
• Cooperate with competent authorities to enhance information sharing on foreign trade payments, customs data, and other relevant records, while providing regulatory support to strengthen the identification and mitigation of risks associated with financial flows.
• Strengthen suspicious transaction monitoring and reporting systems to address risks associated with cyber fraud and scams through enhanced inter-agency cooperation and information sharing.
• Adopt advanced supervisory tools and best international practices to strengthen supervisors’ capacity and enhance the banking sector’s compliance with international AML/CFT/CPF standards.
• Develop and implement an outreach plan to enhance risk awareness and preventive capacity across the banking sector through regular communication of common supervisory deficiencies, recurring violations, and emerging risk trends.

The effectiveness of the banking sector’s AML/CFT/CPF framework will be strengthened through enhanced risk-based supervision, with comprehensive assessments of technical compliance with the FATF 40 Recommendations and effectiveness against the 11 Immediate Outcomes completed. Identified legal, regulatory and supervisory deficiencies will be addressed through targeted remedial measures, contributing to improved risk management, sanctions compliance and internal controls across the banking sector. These efforts will strengthen Mongolia’s readiness for the upcoming FATF Mutual Evaluation, support the maintenance of correspondent banking relationships and enhance international confidence in Mongolia’s banking sector.