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Monday, September 27, 2010

IRDA issues detailed anti-money laundering guidelines for insurers

Guidelines covers guidelines/circulars issued up to 31 July 2010 

IRDA in its recent circular dated 24 September 2010, has cautioned insurers about possible money laundering through insurance sector. In its master circular, it has updated its AML/CFT guidelines issued in its previous circular dated 24th November 2008 for Insurers.
IRDA feels that the Insurance industry needs to be guarded against money launders who may try to convert their illegally earned money in to a legal one by investing in insurance products. This is more relevant now with the ulip products, being seen more as an investment tool than as a protection policy. 

IRDA has identified the following as vulnerable products
 
They are 1) Unit Linked Products which provide for withdrawals and unlimited top up premiums; 2) Single premium products where the money is invested in lump sum and surrendered at the earliest opportunity; 3) Free look cancellations (the big ticket cases) 

Money laundering means moving illegally acquired cash through financial systems so that it appears to be legally acquired. IRDA has issued a detailed guidelines for insurers to prevent terrorists and money launderers from investing in insurance products. Insurance products are offered to the public through trained agents of insurance companies and also through a number of alternate distribution channels like direct marketing and bancassurance etc. . 

IRDA feels that the agents and corporate agents also have a significant role in assisting the insurers in the process of identifying money launderers/terrorists in the beginning stage itself and reporting to appropriate law enforcing agency. 

In order to discharge the statutory responsibility of detecting possible attempts of money laundering or financing of terrorism, IRDA advices a AML/CFT program which should consist of 1) Internal policies, procedures and control 2) Appointment of a principal compliance officer 3) Recruitment and training of employees and agents 4) Internal control and audit 

1) Internal policies, procedures and control
 
These include implementing (KYC) know your client norms, knowing existing customers, KYC on ongoing basis, finding the risk profile of the customer, identifying his/her source of funds, verification at the time of redemption/surrender, submission of reports to Financial Intelligence Unit - India (FIU-IND) about suspicious transactions, reporting of suspicious cash transactions, reporting the receipts by non-profit organizations, record keeping and freezing of insurance policies . 

2) Compliance Arrangements
 
IRDA expects Insurers to make a detailed AML/CFT Policy regarding customer acceptance, customer identification procedure, monitoring of transactions and risk management framework. This policy should be approved by IRDA and duly filed with IRDA for information. The policy should be reviewed annually and necessary changes should be made.
It also, suggests that companies should designate a Principal Compliance Officer (PCO) under AML/CFT rules at a senior level. 

3) Recruitment and training of employees and agents.
 
Irda's other suggestions include adequate training of agents and employees involved in selling policies and processing of proposals so that AML/CFT norms are strictly adhered to. 

4) Internal control and audit
 
Insurance companies' internal audit/inspection departments should verify on a regular basis, compliance with policies, procedures and controls relating to money laundering activities.
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