The Financial Action Task Force (FATF) has decided to keep Nepal on its grey list, maintaining the country under increased monitoring due to continuing weaknesses in preventing money laundering and the financing of terrorism.

Nepal was initially placed on the FATF grey list in February 2025, after the global financial watchdog identified shortcomings in the country’s anti-money laundering (AML) and counter-terrorism financing (CTF) framework.

The latest decision came following the FATF June 2026 Plenary meeting in Paris, where the progress of Nepal and several other jurisdictions was reviewed based on developments since February 2026.

As part of the review process, FATF allowed jurisdictions that were not facing immediate deadlines to voluntarily report implementation progress. Nepal remains one of 22 countries currently under increased monitoring.

Six Priority Areas Nepal Must Address

Following its assessment, FATF outlined six major areas where Nepal must demonstrate stronger implementation in order to move closer to exiting the grey list.

1. Improve Understanding of Financial Crime Risks

Nepal must strengthen its ability to identify and understand the country’s major risks related to money laundering and terrorism financing and incorporate those findings into policy and supervision.

2. Strengthen Risk-Based Supervision

The watchdog called for stronger regulatory oversight across higher-risk sectors, including:

Commercial banks
High-risk cooperatives
Casinos
Dealers in precious metals and stones
Real estate businesses

Supervision is expected to become increasingly risk-based rather than applying uniform standards across sectors.

3. Crack Down on Illegal Money Transfer Networks

Nepal has been instructed to identify and take enforcement action against informal and illegal money transfer operators, commonly known as hundi providers, while ensuring that legitimate access to financial services and remittance channels remains uninterrupted.

4. Build Institutional Capacity and Coordination

FATF emphasized improving the investigative capability of relevant agencies and increasing coordination among institutions responsible for combating financial crimes.

5. Increase Money Laundering Investigations and Prosecutions

Authorities are expected to demonstrate measurable progress in conducting investigations and pursuing legal action against money laundering activities.

6. Strengthen Asset Recovery Measures

Nepal must show that it can effectively trace, freeze, seize, and confiscate proceeds of crime according to the level of financial and criminal risk presented by each case.

Progress Seen, But Action Plan Remains Incomplete

Nepal’s regional assessment body, the Asia Pacific Group (APG) on Money Laundering, reviewed the country’s implementation status in January 2026.

According to the assessment, Nepal had made meaningful progress on 9 out of the 15 action items included in its FATF action plan, while the remaining six items were considered only partially implemented.

Nepali authorities, however, have maintained that additional improvements have been made since that review period.

What Grey Listing Means for Nepal

Remaining on the grey list does not result in direct economic sanctions, but it can create additional challenges for the economy.

Countries under increased monitoring often face:

Greater scrutiny of cross-border financial transactions
Higher compliance and reporting costs for banks and businesses
Increased due diligence requirements from international financial institutions
Potential delays in financial flows and investment processing

At the same time, FATF stressed that enforcement measures should not disrupt legitimate economic activity, including humanitarian support and remittance inflows.

Outlook Ahead

FATF acknowledged that Nepal has taken steps since February 2025 to improve weaknesses in targeted financial sanctions related to terrorism financing and proliferation financing.

However, the organization emphasized that Nepal must continue implementing its action plan and demonstrate measurable outcomes—not only policy changes—before it can be considered for removal from the grey list.

For Nepal, the coming review period is likely to become an important test of regulatory credibility, institutional coordination, and the country’s ability to strengthen confidence in its financial system.

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