Insurance: Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) Guidelines

CIRCULAR NO. IRDA/F&I/CIR/AML/180/11/2010, DATED 12-11-2010

The Authority has reviewed the AML/CFT guidelines to align certain stipulations with that of the 40+9 Recommendations of the Financial Action Task Force (FTAF). Accordingly, the following additional stipulations/clarifications are issued for compliance.

Sl. No. Clause Ref. in Master Circular 2010 on AML/CFT guidelines Stipulation/Clarification
i. Clause 3.1-1 While implementing the KYC norms on legal persons insurers will have to identify and verify their legal status through various documents (indicated, but not limited to, at Annexure I of the guidelines), to be collected in support of

  • The name, legal form, proof of existence,
  • Powers that regulate and bind the legal persons,
  • Address of the registered office/main place of business,
  • The natural persons who have a controlling interest an comprise the mind and management of the legal persons.

Systems/processes laid down to meet this requirement may be based on risk perception on the entity (Eg., in case of a public limited company verification and identification of shareholders of that company is not called for)

ii. Caluse 3.1-2 (i) (b) Insurers shall pay special attention to money laundering thereats that may arise from

  • Development of new products
  • New business practices including new delivery mechanisms
  • Use of new of developing technologies for both new and pre existing products.

Special attention should especially, be paid to the non-face-to-face business relationships brought into effect through these methods.

Insurer should lay down systems to prevent their misuse in money laundering schemes. Safeguards will have to be built to manage typical risks associated in these methods like

  • Ease of access to the facility;
  • Speed of electronic transactions;
  • Ease of making multiple fictitious applications without incurring extra cost or the risk of detection;
  • Absence of physical documents; etc.

The extent of verification in respect of such non-face-to-face customers will depend on the risk profile of the product and that of the customer.

Insurers shall have in place procedures to manage specific increased risks associated with such relationships e.g., verification of details of the customer through on-site visits etc.

iii. Clause 3.1-3 (ii) Insurers are directed to lay down appropriate on-going risk management procedures for identifying and applying enhanced due diligence measures to PEPs, customers who are close relatives of PEPs. These measures are also to be applied to insurance contracts of which a PEP is the ultimate beneficial owner.

It the on-going risk management procedures indicate that the customer or beneficial owner is found to be, or subsequently becomes a PEP, insurers shall obtain senior management approval on this business relationship.

iv. Clause 3.1-4 (iv) Insurers are directed to apply the AML/CFT requirements effective from 1st January, 2011, even in case of ‘term life insurance contracts’ hitherto exempt from the AML/CFT requirements.

For the purposes of risk categorization, however, they may be considered as low risk products, unless the details indicate otherwise.

v. Clause 3.3 (iv) It is hereby clarified that ‘freezing of insurance contracts’ would require not-permitting any transaction (financial or otherwise), against the specific contract in question.

2. This circular is being issued in terms of powers under section 14(1)(e) of the Insurance Regulatory and Development Authority Act, 1999.

3. Insurers shall revise their AML/CFT program in accordance with the above stipulations at the earliest and file a revised Board approval AML/CFT program with the Authority, in any case, not later than 31st December, 2010.

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