# Trust at Scale: Global Guardrails for a Digital Economy | DC Fintech Week 2025

- Channel: [DC Fintech Week](https://streameth.org/dc-fintech-week)
- Date: 2025-12-21
- Watch: https://streameth.org/watch/yt-8xYQFulDe04
- YouTube: https://www.youtube.com/watch?v=8xYQFulDe04

## Transcript

I am delighted to welcome our very first speaker, Elisa Deanda Madzo, the president of the Financial Action Task Force here to kick off our program. Thank you. >> Thank you so much. [music] >> So when I when I when I teach my uh students and and thank you so much uh for for for being here. It was a pleasure to also learn that your husband is a law professor. So I can I can be very Socratic now. >> I'm married to academia. >> Yeah. Nobody's perfect. Uh but uh you know when I when I talk to my students about FATF and the financial action task force um it's one of those acronyms that's that's extraordinarily important for international regulation um and really for the integrity of the international financial system. Maybe before we sort of jump into these issues maybe like a quick oneliner for the audience if if they're not um familiar with VAF as as to what VATF does. >> So the FATF we do three main things. The first one is that we set the standards. So basically we put forward non-prescriptive this means it's not extremely detailed rules for the governments to implement and this cascades within the governments into their own law and regulations. We have over 200 jurisdictions. So if you think it in a in a way we are the congress setting the rules for the global system in terms of preventing financial crime, money laundering, terrorist financing and proliferation of weapons of mass destruction. Second thing we do is we assess countries. So we hold them accountable and if there's strategic deficiencies we identify them. This is known as the FATF list which many countries have said that have an impact that can be comparable to the blockade that some countries do financially speaking. So that gives a lot of traction you can say we have a teeth in that way. >> I wrote an entire book on this by the way but yeah >> and the third one is that we follow up on risk and trends and that's why this is so important forum. Thank you for having me, Professor Broner Chris, and for everyone here and and watching us online. It is really the private sector that is key in developing these standards and in moving forward and catching up with the risk and trends that we see. >> Well, you mentioned the the private sector and one of the biggest sort of uh dynamics and drivers in uh private markets today is AI and generative AI. Um, when you think about the the role of FATF, uh, you're talking about those standards that do have real teeth, the the 40 recommendations and and the like that almost every bank in the world is at least familiar with. What does generative AI even mean for the FATF? Is it is it a a a source of of new risk, new opportunity? What what exactly goes through your head when you read about the new developments in in uh in Genai? So the mission stays we're here to protect people to protect societies and the financial sector. How do we go about it and how the risk evolved change with technology and we had a huge development with digitalization but now with AI in particular deep fakes and autonomous agents I think those two have really changed the game for us. So there's two ways you can look about it. One is from the private sector and we do see that the fintech sector is adopting much more technology and AI in comparison to the traditional sectors so banking sector in so to speak. So we have to catch up to the use of these technologies and the advantages that they bring to fighting financial crime but also the risk that they bring and from the private from the public sector we also need to use these technologies in our advantage. I can give you a little bit of assessment of how do we see that if if you okay so governments are not doing very well actually today we're here in DC because we have the G20 meetings and the annual meetings for the IMF and the World Bank and today at the G20 the World Bank will be presenting a paper on the use of AI by the financial sector supervisors and governments are reporting the majority of them that they're using AI to do summaries to work with the information but it's really basic use. So I don't know if it's a generational thing, it's a lack of resources, but we really need to shift tradition include myself as a public servant. We really need to shift uh the public sector into using these technologies because AI and new technologies in general allows us to move into an X-ray area where traditionally we would only see what's outside and these technologies really give us a different lens. the private sector as I said the fintex are doing much better in embedding this technology from the beginning in the products the services you're developing so kudos on on that front and I want to say that from the fa perspectives we really want to foster innovation and innovation is not only with the sectors that you're developing but also in the use of technologies so we see the use of technologies as a positive thing provided that they're embedded that they are used to prevent crime and that you are aware of the risks And I would like maybe later on the conversation to touch on fraud and scams and how we're looking into those trends. >> We we'll get that. But I I wanted to touch on one thing that I that I I heard that was super interesting. You said that the FinTechs are the ones who were jumping into um AI a little bit faster than your your your traditional bank. And and and and it's interesting especially as we move to a question like fraud and moneyaundering and the like. Um, I've been I've been on my travels lately uh to different countries and and talked to um different individuals about um AML, KYC, general financial integrity. And depending on where you are in the world, there are different sort of points of emphasis. one being uh even on the financial inclusion guide guys guides and whether or not sort of smaller institutions can uh keep up with requirements whereas at the same time you have other kinds of smaller institutions who are embedding AI right is is there um a you know when when you talk about embracing innovation I mean that's not something that you normally associate with with with FATF and president of even even saying that which is which is really interesting But how do you then sort of measure or enable that and and how do you think about sort of the big versus small institution and the financial inclusion question just in in in general? >> There's a lot grap up in that question. >> Yeah, there was >> let me take it by part. So your first point on financial inclusion and this is very core to the presidency of Mexico in the FATF that I hold because we have a lot of our nationals abroad. So we have been dealing with financial inclusion for a long time also refugees. So I think in my career as a public servant I have really seen firsthand the importance of looking at financial services to include everyone. So when I came into the presidency of the FATF and I had to set the priorities, I decided to make financial inclusion one of them which is not a traditional approach you would say uh because we tend to think as a trade-off integrity of the financial system versus inclusion >> but really I I I am convinced and I think the FATF is convinced that this is not a trade-off it is a necessary synergy that we need and let me let me tell you why. To the extent that we push sectors and individuals to unregulated markets, we don't have light to look into those transactions. And the worst scenario from a governmental perspective is to have a bigger ecosystem that is unregulated and in the shadows because that's where terrorists hide. That's where criminals hide. So the best scenario is to bring everyone on board and that should create uh risk appetite because that means we're going to see illicit flows flowing but we need to see them. We want the institutions to report them. So we shouldn't be afraid of uh jumping into this. So what we did is we changed our standards this year to make sure we have this embedded on recommendation one that we allow the use of simplified due diligence measures for products and services that are low risk. Very important for the fintech sector and that we assess that countries are not pushing for over compliance and that they're indicating this to the sector. Now I say this to the private sector and the first thing they tell me is talk to my regulator, talk to my supervisor because [laughter] you can say whatever you want to say from the FATFA but when I have my my on-site visits my supervisor coming in it's very rule-based approach. So this second year of my presidency we're focusing on that the riskbased supervision that should allow for that risk appetite provided that you have the controls to detect those transactions. So that's on the financial inclusion side. Now you talk about uh the use of AI and the fintex and different sides of fintex and I think that's that's completely a a good question because we're not all in the same bucket. Not everyone has the same resources, the same capabilities but what I would say is that criminals are first movers and they're using this technology. So, we have talked about the private sector and government, but the the the criminals, they're not really changing their crimes, but there is scaling up and and using um basically for hire. So, criminals can can hire professionals that are very good at fraud or scams and use AI for this. So, independently of the size that you have, there needs to be an embedded AML CFT component. using technology makes it cheaper in many occasions and the acknowledgement that the criminals do not distinguish between the size of your institution. So we while we understand the resource capability there is no institution that can be not part of the solution. Let me put it that way. >> So impressive. swimming uh as the nerdy guy who's sat around and sort of watched uh FATF uh not not from too afar but uh outside um and seeing this evolution in the FATF's uh perspective uh both in terms of financial inclusion and also uh sort of embracing technology I mean those are very dramatic and uh very important uh changes uh changes that uh I know even here in the United States in Vincent there have been sort of larger conversations I've been a part of myself uh to really think through uh those those particular issues. So um the the world of uh emerging technologies is is is broad. We we touched very briefly on generative AI and we'll go back to that but uh no conversation about emerging technologies is complete if you're not talking about crypto and and crypto assets. Um, FATF has been um, uh, sometimes a little bit more more controversial in the crypto circles uh, with the travel rule and and and and what that uh, means in terms of implementation, but uh, there's been a lot of headway made. Maybe you can just sort of break down sort of where things uh stand with the travel rule and and not not just the travel rule, but but just crypto in general in terms of what do you think strategically the FATF's interests are and and where they're heading and where it's evolving as onchain finance uh grows pretty dramatically. >> So, let me let me take you back to when we started this conversation at the FATF. And this is something that happens behind doors. So maybe it's not that that known but I think it's important to understand how it has evolved and the perspective that we have on on virtual assets. >> So since 2014 we issued the first paper basically acknowledging that we saw this risk and asking governments to look into it. So that was quite early. Uh for those familiar with the the history of crypto, it was two years after it started that we signal that there was a risk. By 2017, it was clear that we had to either make a decision either asked for it to be inhibited, prohibited, or to ask for it to be regulated. So those conversations started back in 2017. To my knowledge, no other international organization was thinking at that point of creating a standard. And I mentioned this because the FATF is really agile. You hear me speaking about O government, O authorities, public servants, and it is because the FATF is a task force. So it's basically public servants including myself. I'm a public servant in Mexico that is secunded for two years full-time to the FATF and uh that that makes us very close to the issues. We're not sitting in an office far away. We're really touching on this on a daily basis. And in on that note we very quickly said we need to define what this is virtual assets. There was a lot of conversations on how should we refer to them and see what the basic expectations should be for governments. We set the standards for the globe. So we need to understand there's different systems different views administratively institutionally politically. So we really need to set the floor. We can all go and and be very prescriptive. And we ask for four things. One of them is to be licensed or registered. And I say license of register because that allowed the governments to decide how much detail and information they wanted. Second that they needed to be supervised that they third that they needed to report to the authorities. So to the FIU in the in the US it's Finson and four that they needed to have the travel rule and I think that's what everyone is acquainted with the travel rule. The travel rule is applicable to any payment system. We actually just updated our standards on that front. So by bringing the virtual assets industry to the same standard, we actually wanted to foster that innovation. We wanted to acknowledge that they were at the same level playing field and that everyone should be equitable. So now what do we have to do as as governments? We need to be very clear on the regulation and to avoid arbitrage. So us doing this really was not a way to inhibit or to diminish the innovation but to foster it because I am sure that everyone that is doing this in this room wants to prevent crime from going into their systems if you're a virtual asset service provider. The reality is that it might happen and it will it's probably happening in all virtual asset service providers because criminals are indeed using virtual assets. That doesn't mean all of it is illicit flows. We see its value for innovation, for um speed, for the reduction of cost, for in financial inclusion, for remittances, but the reality is that there's a risk just as it is in the traditional financial system. So we wanted to give the basis for governments to regulate it. And we allow governments to prohibit. So they can either prohibit or use the standards and most countries, the great great majority are implementing the standards. So in a way it was it was also a way to protect and to understand that we we needed to bring them on board just as we have brought other sectors into the FATF standards. >> Yeah. You know, I I I think it's it's often overlooked how the regulatory standard setting and the international crossber standard setting uh does actually is an enabler to the extent to which uh if everyone kind of knows what the expectations are and if one understands what the what the norms are uh frankly it enables everyone to start building uh a little bit uh faster. Um, one of the the the other trade-offs, if one will or or tensions uh that one sees is this question of privacy preserving technologies of which um cryptographic tools are just one species and the need for transparency in combating fraud and moneyaundering uh and and other threats to financial systems. How do you how do you view those technologies and how do you view that balancing effort um as ever new tools uh come to markets? >> Let me break it in two parts. The first thing is that from the FATF it has been a challenge to deal with data protection increasingly in recent times as we have more global interactions of payments and also a divergence and an arbitrage of rules globally in comparison to the FATF that has the AML CFT standards we don't have a data protection international >> government cell setter the only one that you have is the EU the EU has come together and they have their policies but when you're setting the standards on AML CTFT you're dealing with the whole globe and different rules and different perspectives on how to move with it you don't have an interlocator just as you have with other set with other areas so it is a challenge because governments haven't come together and say okay let's put the basic rules on data protection so that's just um a reality check of what we're facing and I'm saying we're facing because we're currently doing those efforts we're working with other partner organizations such as the FSV we're working with the UN uh with uh the OECD um the GPA but it it is it is not an easy conversation to set the standards but of course data protection and privacy it's a fundamental right and it should not be inhibited or affected by the protection of the financial system in terms of AMLCFT. Now that question has been there from the beginning of time in when when the first AML CFT rules came into place with the financial sector and and there's specific rules on how you bring this information then not tipping off how does not not affect data protection but I do think that technology it's actually the solution for that because the algorithms and the technology allows you to share that information in a secure way provided that it is in a secure way. Some people think well this is a honeypot for criminals because if they access the database they can basically have a a leakage of information but that would apply for any sector that's not related to AMLCFT that happens to anyone provided any time any type of of service. So I do see it as a promising solution and if you think going back to the travelers's rule actually when we asked the travel rule for the crypto the the industry because we're working very closely with the industry told us there's no way we can do this. This is the blockchain everything runs in the in in the blockchain. Everything is public and actually it was the sector that came up with the solutions. We were technology neutral into who they hire to precisely share the information with the transaction in the blockchain. So I do see and we have seen technology as the solution for these challenges and if I may the advertisement the FATF is continuously looking for engagement with the private sector. We have a forum every year. We invite representatives. Each country presents or suggests which are the representatives. But by all means, we do invite you to get close with us. And we have a virtual asset contact group of government that is routinely meeting. A lot of it is virtual with the sector to see how this is being implemented. So do not hesitate to reach out. We are and we increasingly will be an open FETF including with the private sector. >> So only only one minute. uh left and and I guess uh maybe to put the exclamation point on what you had just mentioned uh and to wrap up in a bow some of the earlier conversations I mean when you think about AI when you think about blockchain based technologies ultimately you're talking about the digitalization of finance and when you >> move in that direction uh it creates new opportunities for programmability um embedded compliance and the like are there any Um, number one, are are there any areas where you find that particularly interesting in the AMLKYC space? Um, and do you have any any priorities for those conversations as you talk to the private sector? >> So, I would say two things. First, information sharing. And information sharing, it's quite broad. It's not only government to government. It's also private to public and private to private. So we're starting to see exercises within countries that is happening mostly at the traditional financial sector. But I think that it would be interesting for the fintech industry where in many jurisdictions there is a the capability to share information amongst you on the risk and trends that you're seeing and technology allows you to do that in a way that you don't reach your customers information. So that's that's one very promising area and with the new architecture of the financial system with technologies the chains of payments of course run through many or more jurisdictions and more many more actors. So to the extent that that we can share the information across that chain we will actually be able to stop and detect the criminals. The second area is to fight fraud and scams. And I really want to bring this to the attention of the room. I'm sure you're seeing this because we receive reports from from the the governments, but 90% of the jurisdictions in the global network and as I said, we're 200 jurisdictions report fraud as one of their three main predicate offense. Predicate offense are those crimes that create illicit proceeds. So basically most of the crimes and when we look into the use of technologies again this report that will be presented today when we look at how the private sector is using technology after u just customer service so uh robo chats and and and that sort of things. The first area where the private sector is using technology is to prevent fraud and scandals. So that is a very promising area uh that I see for the use of technology. Well, hopefully Emarin can see why I thought it was so important that we make the time to hear from you. I think it's a unique perspective. It's one that a lot of people don't always get to hear and to even hear about the evolution in thinking and strategy within the FAT. Thank you so much for taking the time. >> Thank you for having me and thank you for the interest. >> Thank you so much. [applause] [music]