By effectively meeting their regulatory obligations in terms of the Financial Intelligence Centre Act 38 of 2001 (FIC Act), the long term insurance sector plays a vital role in ensuring the integrity of South Africa’s financial system and help to prevent crime in financial activity.
Businesses or persons, listed as accountable institutions in Schedule 1 of the FIC Act, who offer products, advice and/or intermediary services in relation to long term insurance have certain compliance and reporting obligations in terms of the FIC Act.
These obligations include applying a risk based approach to customer due diligence, record-keeping, appointing a compliance function, training employees on FIC Act compliance, developing and implementing a risk management and compliance programme (RMCP), registering with and submitting various reports to the FIC.
It is essential that accountable institutions remain aware of the ever-present risks they face from criminals who seek to misuse their products and services for money laundering and/or terrorist financing purposes.
Section 42 of the FIC Act requires that an accountable institution develop and maintain a RMCP which incorporates all the controls to combat and mitigate the money laundering and terrorist financing risk the entity faces. Controls can include but are not limited to policies, processes, and systems.
Customer due diligence
Importantly, it is the long term insurance provider’s obligation to know and understand exactly who their clients are.
The level of due diligence including verification that the long term insurance provider applies with regard to a client depends on the level of money laundering and terrorist financing risk posed by dealings with the client. Where the client relationship presents a high risk from a money laundering and/or terrorist financing perspective, a more stringent form of due diligence including verification must be conducted as part of the long term insurance provider’s overall customer due diligence.
To determine the risk a client poses from a money laundering and/or terrorist financing risk perspective the long term insurance provider should consider various factors. These may include, but are not limited to, the client type, geographical area, the distribution channel used, the products or services, as well as any other factors the accountable institution determines necessary.
Public compliance communication 48 (PCC 48), which was published on 31 March 2020 provides guidance to accountable institutions that offer life insurance products and/or advice or intermediary services.
When assessing the risk relating to their clients, long term insurers must consider the associated money laundering and/or terrorist financing risk implications that the nominated beneficiary to the life insurance product may have on their client.
Long term insurance providers must obtain information on the nature of the client’s business, the ownership and control structure of the client, and the beneficial ownership of the client.
Beneficial ownership, in respect of a legal person, refers to the natural person who independently or together with another person owns the legal person or exercises effective control over the legal person. The long term insurer must obtain information on the client’s source of funds. Where the client presents a high risk, in addition to source of funds information, the insurer must obtain source of wealth information as well.
Reporting on suspicious and unusual transactions
Section 29 of the FIC Act requires all businesses, regardless of whether they fall within the ambit of Schedule 1, to file suspicious and unusual transaction reports. In this regard, long-term and short-term insurers have a duty to file reports where they become aware of suspicious and unusual activities and/or transactions.
Items on Schedule 1 may be revised as set out in the proposed amendments to the Schedules to the FIC Act which was published in the Government Gazette on 19 June 2020. All accountable institutions are urged to provide comment on the proposed amendments.
All accountable institutions, reporting institutions and other businesses can refer to FIC Guidance Note 4B for guidance on reporting suspicious and unusual transactions. Further information is available on the FIC’s website www.fic.gov.za.