AML/CFT and Sanction Compliance Report issued by Central Bank of Ireland today (8th March 2016) for Life Insurance Sector
The inherent risk of money laundering and terrorist financing can be lower in the life insurance sector relative to some other sectors, but life companies need to be cognisant that there are products, customers and geographic regions that present a higher risk.
The Report is based on a combination of on-site inspections and off-site desk top reviews carried out by the Central Bank over the course of 2014 and 2015.
In summary the Central Bank says:
Certain products, customers and geographic regions present a higher risk of money laundering and terrorist financing for life insurance companies.
The inherent risk of money laundering and terrorist financing can be lower in the life insurance sector relative to some other sectors. [Ed - and depending upon the nature of the product and customer, it can be far higher!]
However, life companies should note that certain products, customers and geographic regions may present a higher risk.
Central Bank expects life companies to carefully consider the issuesraised in its Report [Ed - I'd expect that Compliance and MLRO professionals in non-life sectors (not just insurance) will read the Report to: (i) get a better understanding of the Central Bank's thinking on AML/CFT and Sanctions; and (ii) help inform any view on whether the Insurance industry is for any reason treated more favourably than their own. I am not expressing a view on point (ii) (I have one) but it has to be said that many risk professionals will have strong views here.]
The life insurance sector in Ireland offers a diverse range of products sold through a range of distribution channels, both domestically and cross border. Life companies must understand the risks applicable to their own business and implement controls that are appropriate to effectively mitigate those risks.
What does the Central Bank expect? Firstly, that all life companies to carefully consider the issues raised in the Report, and to use the Report to inform the development of their AML/CFT and FS frameworks.
Secondly, although in many instances, life companies had satisfactory procedures and systems and controls in place, but issues identified in the Report (and which need to be addressed) include:
Non-adherence to internal policies; [Ed - common theme in every industry]
Weaknesses in the suspicious transaction reporting process; [Ed - ditto]
Deficiencies in the on-going customer and transaction monitoring processes; [Ed - ditto]
Insufficient evidence of life companies determining the adequacy of documentation and/or information held for existing policyholders pre-July 2010; [Ed - interesting. This is a reference to the commencement of the Criminal Justice (Money Laundering & Terrorist Financing) Act 2010 which I oversaw when at the Central Bank. It has the feel of look back exercise, at least in part, to the time period when the Central Bank of Ireland took an active interest in financial crime as a national competent authority.]
Deficiencies in the policies and processes in place relating to third party reliance and outsourcing arrangements; [Ed - like other regulators, the Central Bank is at pains to point out that a firm can delegate the function, but not the responsibility for compliance with regulatory requirements]
Deficiencies in the policies and procedures in place with respect to the definition and identification of Politically Exposed Persons; [Ed - I suspect that this will be of a concern to senior management and the Board of life insurers given the lack of a government sponsored PEP list. This means that senior management must figure out a way to ensure that this provision of the law is adhered to and give comfort of same to the Board]
Failure to sufficiently identify, verify and document Source of Funds and Source of Wealth. [Ed - have we settled the debate on what these terms actually mean and if they overlap? In any event, digging into a customer's source of wealth is a delicate matter. I recall many years ago when a client was informed that an expensive insurance premium policy was being funded by unemployment benefits. How the individual could afford the premiums based on an Irish State benefit was beyond me and my client. After careful consideration, the policy proposal was rejected and a lot of thought was put into a suspicious transaction report being filed based on the evidence uncovered during the search to confirm the SoW]
If you need assistance or wish to discuss the impact of the letter and requirements on your firm, please get in touch with me at firstname.lastname@example.org. We are Ireland's only advisory, representation, director services and training firm owned and operated by a former Director of the Central Bank of Ireland. Peter established the Enforcement Directorate and the AML teams at the Central Bank in 2010. Peter Oakes is also an experienced Board Director, Chief Risk Officer and Solicitor.