Master Circular on Anti Money Laundering/Counter- Financing of Terrorism

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA

[Image omitted. See the official document.]

MASTER CIRCULAR
ON
ANTI MONEY LAUNDERING/COUNTER FINANCING OF TERRORISM (AML/CFT)

GUIDELINES FOR LIFE INSURERS

IRDAI/SDD/GDL/CIR/175/09/2015

28^th September, 2015

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Table of Contents

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[Image omitted. See the official document.]

भारतीय बीमा विनियामक और विकास प्राधिकरण
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA

28^th September, 2015

To
The Chairman/CEOs of all Life Insurers

Master Circular on
Anti Money Laundering/Counter- Financing of Terrorism (AML/CFT)-Guidelines for Life Insurers

1. Background:

1.1 The Prevention of Money Laundering Act (PMLA), 2002 (the Act) brought into force with effect from 1^st July 2005, is applicable to all the financial institutions which include Life Insurers. The application of anti-money laundering measures to non-depository financial institutions generally, and to the Life Insurers in particular, has also been emphasized by international regulatory agencies as a key element in combating money laundering. Establishment of anti money laundering programs by financial institutions is one of the central recommendations of the Financial Action Task Force and also forms part of the Insurance Core Principles of the International Association of Insurance Supervisors (IAIS). Accordingly, the Authority decided to put in place the following regulatory guidelines/instructions to the Life Insurers and Agents as part of the programme on Anti Money Laundering/Counter-Financing of Terrorism (AML/CFT) for the insurance sector.

1.2 Life Insurers offer a variety of products aimed at transferring the financial risk of a certain event from the insured to the Life Insurer. These products include life insurance contracts, annuity contracts, and health insurance contracts. These products are offered to the public through trained agents of the Life Insurers and also through a number of alternate distribution channels like direct marketing, bancassurance, etc. The guidelines are therefore of importance to the agents also, to the extent indicated herein.

1.3 The obligation to establish an anti-money laundering program applies to a Life Insurer. They have the responsibility for guarding against insurance products being used to launder unlawfully derived funds or to finance terrorist acts.

2. What is Money Laundering?

2.1 Money Laundering is moving illegally acquired cash through financial systems so that it appears to be legally acquired.

2.2 There are three common stages of money laundering as detailed below which are resorted to by the launderers and Life Insurers which may unwittingly get exposed to a potential criminal activity while undertaking normal business transactions:

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AML/CFT Master Circular- Life Insurers 2015

• Placement - the physical disposal of cash proceeds derived from illegal activity;
• Layering - separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the source of money, subvert the audit trail and provide anonymity; and
• Integration - creating the impression of apparent legitimacy to criminally derived wealth.

2.3 If the layering process has succeeded, integration schemes place the laundered proceeds back into the economy in such a way that they re-enter the financial system appearing to be normal business funds. Financial Institutions such as Life Insurers are therefore placed with a statutory duty to make a disclosure to the authorized officer when knowing or suspecting that any property, in whole or in part, directly or indirectly, representing the proceeds of a predicated offence, or was or is intended to be used in that connection is passing through the Life Insurer. Such disclosures are protected by law, enabling the person with information to be able to disclose the same without any fear. Life Insurers likewise need not fear breach of their duty of confidentiality owed to customers.

3. AML/CFT Program

In order to discharge the statutory responsibility to detect possible attempts of money laundering or financing of terrorism, every Life Insurer needs to have an AML/CFT program which should, at a minimum, include:

• 3.1 Internal policies, procedures, and controls;
• 3.2 Appointment of a Principal compliance officer and a designated director;
• 3.3 Recruitment and training of employees/agents;
• 3.4 Internal Control/Audit;

The above key elements of the AML/CFT programme are discussed in detail below:

3.1 Internal policies, procedures and controls:

Each Life Insurer has to establish and implement policies, procedures and internal controls which would also integrate its agents in its AML/CFT program, as detailed below:

3.1.1 Know Your Customer (KYC) Norms

• i. Considering the potential threat of usage of the financial services by a money launderer, Life Insurer should make reasonable efforts to determine the true identity of all customers requesting for its services especially the person who funds/pays for an insurance contract, either as beneficial owner or otherwise. For the purposes of these norms, the term customer also refers to the proposer/policyholder; beneficiaries and assignee. Where a client is a juridical person, verification of identity is required to be carried out on persons purporting to act and is authorized to act on behalf of a client.
• ii. Effective procedures should be put in place to obtain requisite details for proper identification of new customers. Special care has to be exercised to ensure that the contracts are not under anonymous or fictitious names.

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AML/CFT Master Circular- Life Insurers 2015

• iii. Life Insurer to take steps to identify the beneficial owner and take all reasonable measures to verify his/her identity to their satisfaction so as to establish the beneficial ownership. Procedures for determination of Beneficial Ownership are prescribed at Annexure I

  ('Beneficial owner' for this purpose means 'an individual who ultimately owns the insurance policy or controls a customer of the Life Insurer or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a juridical person.)

• iv. A list of officially valid documents to be verified at the time of accepting the risk for compliance with KYC requirement for individuals and others is given in Annexure II. No further documentation is necessary for proof of residence where the document of identity submitted also gives the proof of residence. It is mandatory to obtain any one of the documents to clearly establish the customer identity in respect of all new insurance contracts. Recent photograph shall be collected in case of individual customers in relation to individual policy.

• v. In case of small value policy holders and for spread of insurance into rural and low income sectors, especially micro-insurance, the KYC requirement may be relaxed for a total annual premium of Rs. 10,000/- on life insurance policies held by a single individual from the requirement of recent photograph and proof of residence.

• vi. Documents collected towards the identity and address of the customer should be duly certified by an authorized person as identified by the Life Insurer. In cases where e-KYC services of the Unique Identification Authority of India (UIDAI) are availed for KYC verification (which is acceptable subject to specific and express consent of the customer to access his/her data through UIDAI system), certification requirements under this clause shall be deemed to be complied with. The e-KYC should be based on biometric (finger/iris) authentication as the primary mode with One Time Password (OTP) based authentication as a second factor.

• vii. While implementing the KYC norms on juridical persons, Life Insurers will have to identify and verify their legal status through various documents (indicated, but not limited to, at Annexure II of this guidelines), to be collected in support of

  • The name, legal form, proof of existence,
  • Powers that regulate and bind the juridical persons,
  • Address of the registered office/ main place of business