Antimoney laundering and CFT
Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) Programme
Empowered by the Prevention of Money Laundering Act (PMLA) and the rules framed there under, the AML/CFT guidelines (the guidelines) to the insurance sector were first issued in March 2006. Since then the insurance sector has been working towards an effective AML/CFT regime in India. The guidelines emphasize the importance of the customer due diligence processes, reporting obligations and record keeping requirements as required under the PMLA.
Insurers have laid down systems and processes towards implementation of various requirements under the broad oversight of their board through the audit committee. There is a regular review of the effectiveness of the systems through the insurer’s internal audit/inspection departments. Compliance with the guidelines is also monitored by IRDAI through both on-site and off- site processes.
Cash Acceptance Threshold
The insurance sector is very similar to the banking sector in that both are vehicles and instrumentalities for encouraging savings amongst the people in the country. The insurance laws in the country also mandate that a certain proportion of every company’s business must emanate from the rural sector. Given the vast number of villages in India, compared to which the spread of banks is limited, to remove the hindrances posed by the restrictions on acceptance of cash, the IRDAI had aligned the stipulation with that prevalent in the banking sector. This was also aimed at encouraging insurance companies to tap rural business effectively, consequently improving on insurance penetration and density.
The requirement was also in line with the CBDT notification S.O. 1214 (E) dated May 26, 2011 amending Rule 114B of the Income-tax Rules, 1962, inserting clause (q) which requires every person to quote his Permanent Account Number (PAN) in all documents pertaining to the transactions where there is a payment of an amount aggregating to fifty thousand rupees or more in a year as life insurance premium to an insurer as defined in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938).
In order to have tighter controls as regards ‘acceptance of premium in cash’, the IRDAI has mandated stringent controls like the requirement of verification of the PAN number so obtained from the customer. Insurers are also required to lay down proper mechanisms to check any kind of attempts to avoid disclosure of PAN details. In case of possible attempts to circumvent the requirements, insurers are directed to report the same as suspicious activity to Financial Intelligence Unit- India (FIU-IND).
AML/CFT Guidelines Applicable to General Insurance Companies
Considering the fact that AML/CFT requirements applicable to general insurance companies differ from those applicable to life insurance companies, the guidelines have been modified to meet the nuances of typical characteristics of the general insurance business. Various related aspects were widely deliberated with all the general insurance companies through the General Insurance Council. A consolidated circular on various stipulations/requirements of AML/CFT framework, as applicable to general insurance companies, was issued in February 2013. Through this circular, insurers have been advised to apply the AML/CFT requirements based on their risk assessment of each of the product’s profile. The earlier exemption given to standalone medical and health insurance policies now stands withdrawn.
Revision of AML/CFT Guidelines for Life Insurers
Pursuant to amendment of PML (Maintenance of Records) Rules, 2005 in 2013 by Central Government, IRDAI master circular on AML/ CFT issued in 2010 for Life Insurers was revised in line with amendments. The revised Master Circular was issued on September 28, 2015.
Coordination with Various Agencies/ Departments
IRDAI is in active coordination with various agencies/departments in ensuring effective implementation of AML/CFT regime in India and is part of the Working Group for National Risk Assessment (NRA) on AML/CFT constituted by the Department of Revenue. IRDAI is also part of the Core Working Group (CWG) constituted by the Department of Economic Affairs (FATF Cell) for implementation of revised recommendations of FATF.
In addition, IRDAI is also actively associated with the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG), a FATF style regional body.
IRDAI has initiated regular interaction with the Financial Intelligence Unit-India (FIU-IND) and actively took part in the working group constituted with industry representatives on finalization of report on the ‘Red Flag Indicators for Insurance Sector’. IRDAI is also part of the Department of Financial Services initiative of building Central KYC Registry.
IRDAI and FIU-IND signed a Memorandum of Understanding (MoU) on Mutual Cooperation on January 29, 2014 as part of continued coordinated efforts in effective implementation of requirements of the Prevention of Money Laundering Act and the rules framed there under.
According to the MoU, IRDAI and FIU-IND will cooperate with each other in areas of mutual interest including the following:
- Sharing of intelligence and information available in their respective databases.
- Laying down procedure and manner in which the reporting entities report to FIU-IND under the PML (Maintenance of Records) Rules.
- Conducting outreach and training for reporting entities.
- Upgradation of AML/CFT skills reporting entities regulated by IRDAI.
- Assessment of Anti-Money laundering/ Countering the Financing of Terrorism (AML/ CFT) risks and vulnerabilities in the Insurance Sector
- Identification of red flag indicators for Suspicious Transaction Reports (STRs) in the insurance sector.
- Supervising and monitoring the compliance of reporting entities with their obligations under PMLA.
- Compliance with each other’s obligations under the relevant international standards.