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Supervisors are expected to have the ability to monitor compliance with anti-money laundering (AML) and counter-terrorist financing (CFT) laws and regulations, as emphasized in FATF Recommendation 29. This recommendation highlights the importance of ensuring that financial institutions adhere to legal requirements and compliance measures. If supervisors lack monitoring capabilities, they cannot effectively assess whether institutions are following the established laws, which could allow for potential violations related to money laundering and terrorist financing.

By having the authority to impose sanctions, supervisors can take necessary actions against those institutions that do not comply, thus reinforcing accountability within the financial system. This level of oversight is essential for maintaining the integrity of the financial sector and preventing illicit activities.

The other options, while relevant in broader financial regulation contexts, do not align specifically with the mandates outlined by FATF regarding supervisory powers concerning AML and CFT measures. For instance, licensing power is about establishing institutions' ability to operate rather than ongoing compliance monitoring, and tax collection pertains to fiscal policies rather than AML/CFT supervision. The authority to create regulations typically lies with legislative bodies rather than supervisory authorities.