Insurance Sector & AML/CFT - India
The Prevention of Money Laundering
Act (PMLA) of 2002 empowers Insurance Regulatory and Development Authority
of India (IRDA) to issue guidelines to the insurance sector on anti-money
laundering and combating the financing of terrorism (AML/CFT).
The Prevention of Money Laundering
Act, 2002 (PMLA) forms the core of the legal framework put in place by India to
combat money laundering. PMLA and the Rules notified there under came into
force with effect from July 1, 2005 . Director, FIU-IND and Director
(Enforcement) have been conferred with exclusive and concurrent powers under
relevant sections of the Act to implement the provisions of the Act.
PMLA is an act to prevent
money-laundering and to provide for confiscation of property derived from, or
involved in, money-laundering and for matters connected therewith or incidental
thereto.
AML/CFT Guidelines
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.
A consolidated
circular on various stipulations/requirements of AML/CFT framework, as
applicable to general insurers 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.
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.
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.
Department of
Revenue formed an Inter-Ministerial Co-ordination Committee (IMCC) and
subsequently Joint Working Group (JWG) of which IRDAI is a member. The main aim
of aforementioned Committees/group is to co-operate/ consult/ develop/
implement matters related to anti-money laundering or countering the financing
of terrorism laws, regulations and guidelines among the Government, law
enforcement agencies, FIU-IND and the regulators. IRDAI is reporting the
concerned Ministry the preparedness of the insurance sector against the
applicable FATF recommendations.
Operationalization of Central KYC Records Registry
In order to facilitate Banks/Financial Institutions with KYC related information of customers so as to avoid multiplicity of undertaking KYC by Banks/Financial Institutions each time a customer avails any financial product/service, Hon'ble Finance Minister announced in the Union Budget 2012-13 that a Central Know Your Customer (KYC) depository will be developed to avoid multiplicity of registration of KYC data.
As per the 2015 amendment to PML
(Maintenance of Records) Rules, 2005, every reporting entity shall within 10
days of the establishment of client based relationship file the electronic copy
of the client's KYC records with the Central KYC Records Registry (CKYCR).
IRDAI vide circular dated July 12,
2016 advised insurers to upload the KYC records of individual policyholders to
Central KYC Registry. Thereafter, to comply with the extant PML Rules, IRDAI
vide circular dated January 22, 2021 advised insurers to:
- Upload the KYC records of Legal Entities (LEs) to CKYCR
on or after April 01, 2021.
- Communicate the KYC identifier to the respective
policyholder in a confidential manner, once generated/allotted by CKYCR.
- Update the existing KYC records periodically.
Guidelines for e-KYC
IRDAI has issued a circular on
January 29, 2019 advising insurers not to mandatorily seek Aadhaar and Form/60
from the proposer/ policyholder as part of KYC. However, insurers may accept
Aadhaar card as one of the documents for establishing identity and/or address
of the proposer/policyholder for KYC purpose subject to certain conditions.
In this connection, Department of
Revenue/ Ministry of Finance dated February 13, 2019, has notified “Prevention
of Money-Laundering (Maintenance of Records) Amendment Rules, 2019”.
Thereafter, Ministry of Law and Justice has notified “Aadhaar and the other
laws (Amendment) Act, 2019” on July 24, 2019 allowing online authentication of
Aadhaar only by Banking companies and Telecom industries and offline
verification for Insurers under the Aadhaar (Targeted Delivery of Financials
and other Subsidies, Benefits and Services) Act, 2016. This act also specified
that insurers will be allowed to perform online authentication subject to the
notification by Central government, on the recommendation of IRDAI and UIDAI.
Accordingly, 29 insurers were
notified on April 23, 2020 and 24 insurers were notified on August 19, 2020 to
undertake Aadhaar Authentication service of UIDAI under section 11A of PML Act
2002.
In order to simply the process of
KYC by leveraging various electronic platforms, IRDAI issued Circular dated
September 18, 2020 on “Video Based Identification Process”.
lllustrative
list of Suspicious Transactions:
1. Customer insisting on anonymity, reluctance to provide identifying information, or providing minimal, seemingly fictitious information
2. Cash based suspicious transactions for payment of premium and top ups over and above Rs. 5 lakh per person per month.
3. Frequent free look cancellations by customers;
4. Assignments to unrelated parties without valid consideration;
5. Request for purchase of a policy in amount considered beyond apparent need;
6. Policy from a place where customer does not reside or is not employed;
7. Unusual terminating of policies and refunds; 8. Frequent request for change in address
9. Borrowing the maximum amount against a policy soon after buying it
10. lnflated or totally fraudulent claims e.9., by arson or other means causing a fraudulent claim to be made to recover part of the invested illegitimate funds
11. Overpayment of premiums with a request for a refund of the amount overpaid.
12. Multiple DD each of denomination for less than Rs. 50,0001 for payment of premium and top ups over and above Rs. 2 lakh per person per month.
13. Media reports about a customer
14. lnformation sought by Enforcement agencies
Note: The list is only illustrative and not exhaustive. For more examples on Suspicious Transactions please visit http://www.iaisweb.org
Happy Reading,
Those who read this, also read:
1. AML/CFT : Definitions, Origin
2. PMLA 2002: Objectives & Applicability
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