Kathmandu- Nepal, which has remained on the Financial Action Task Force (FATF) grey list for the past one and a half years, failed to exit the list following the latest plenary meeting. However, officials say the country has demonstrated steady progress in effectiveness assessments leading up to the review.

According to officials at the Ministry of Finance, Nepal has shown improving performance in the measurement of Immediate Outcomes (IOs), a key indicator used by FATF to assess the effectiveness of anti money laundering and counter terrorist financing measures.

Speaking at a parliamentary committee meeting last week, Joint Secretary Mahesh Acharya said the assessments conducted so far had been encouraging and expressed confidence that Nepal would record significant improvements during upcoming assessments and face to face evaluations.

Nepal was retained on the grey list mainly because its Immediate Outcome scores were not high enough and substantial improvements could not be demonstrated within the required timeframe.

The latest assessment indicates that Nepal has fully addressed four Immediate Outcomes and is expected to receive higher ratings in those areas. As of the May 2026 review, Nepal had addressed IO 2, which relates to effective international cooperation and coordination, according to a report prepared by the Ministry of Finance.

The ministry also stated that Nepal has established mechanisms to ensure beneficial ownership information of legal persons and arrangements is readily available and protected from misuse for money laundering purposes. It further noted improvements in the effectiveness of the Financial Intelligence Unit, as well as stronger investigation and prosecution efforts. Two additional indicators have also been addressed, although ratings for them are yet to be assigned.

Of the 11 Immediate Outcome indicators, four have been fully addressed and are expected to receive high ratings. The ministry is also confident that two more indicators will secure high ratings. Among the remaining five indicators, most are expected to receive low to moderate ratings, raising hopes that Nepal will receive a more favourable assessment in the next review cycle.

FATF has issued 40 recommendations for Nepal, known as technical compliance requirements. These cover areas ranging from institutional arrangements to legal reforms. Finance Ministry officials say Nepal has made substantial progress on 30 of these recommendations. The country had already surpassed the minimum threshold by substantially implementing at least 21 mandatory recommendations.

However, Nepal's effectiveness ratings remain weak. While the 40 recommendations measure whether laws and institutions are in place, the Immediate Outcomes assess whether those measures are producing tangible results. FATF evaluates effectiveness through 11 indicators. To meet the benchmark, a country must achieve moderate effectiveness in at least seven indicators and substantial effectiveness in three. Although Nepal has crossed the threshold for substantial effectiveness, it still lacks a sufficient number of indicators rated at the moderate level.

Officials believe Nepal could exit the grey list if it fully addresses one more indicator and achieves partial compliance in seven others before the next assessment.

Regarding the remaining indicators, the deadline for demonstrating effectiveness under IO 1 is September this year. Two key tasks are required under this indicator. One deadline has already passed, while work on the second is still ongoing. Authorities say implementation has begun, though the indicator is likely to receive a low rating.

For IO 3, the deadline extends to January 2027, and partial implementation has already started. IO 4 currently holds a moderate rating, while IO 7 remains rated low.

The Ministry of Finance also claims that indicators 10 and 11 are linked to the implementation of Recommendations 5 and 7 under the 40 point FATF action plan and that the required measures have already been completed.

All of these areas will be reviewed and defended by Nepal during upcoming FATF meetings.