Customer Due Diligence on Life Insurance Benefits
FIC Public Compliance Communication
The Financial Intelligence Centre (FIC) issued a Public Compliance Communication (PCC), which provides guidance on the obligations placed on accountable institutions that offer products, advice and/or intermediary services in relation to life insurance. The PCC aims to provide clarity on three self-standing issues relating to the risk assessment of an accountable institution that will be discussed in greater detail below.
Risk assessment of an accountable institution's client
The person with whom the accountable institution establishes a business relationship and/or enters into a single transaction is the accountable institution's client. Should the accountable institution consider a life insurance policy to be a low-risk product, all other related indicators should nonetheless be taken into consideration.
Weighting should be attributed in relation to the level of money laundering and terrorist financing (ML/TF) risk to which the accountable institution may be exposed. Such risk rating must be completed as part of the client onboarding process and prior to the acceptance of the client. The accountable institution may not receive any funds or make any payouts, until such time as the ML/TF risk of the client has been identified and the relevant Customer Due Diligence (CDD) has been obtained and completed.
Reassessment of the risk relating to its clients must be done at various points during the business relationship and a trigger for reassessment may be the change of a nominated beneficiary on a client's policy. Furthermore, the ML/TF risks relating to the nominated beneficiaries of the accountable institution's clients must be considered when assessing a client's risk and conducting CDD.
Obligations pursuant to the naming of beneficiaries of a life insurance product
As mentioned above, the information about the nominated beneficiary is part of the information relating to the client that needs to be assessed to understand the ML/TF risks that may foreseeably occur with this beneficiary. Therefore, an accountable institution should have sufficient knowledge of the nominated beneficiary at any given time. For example, if an accountable institution identifies that a nominated beneficiary is a sanctioned person as listed in the South African sanctions regimes, it would be cautioned not to continue with the arrangement as it would not be in a position to lawfully honour such an arrangement at the payout stage.
It is not the FIC's expectation that CDD be conducted on the beneficiary at nomination as the beneficiary only becomes the client of the insurer at the time when their rights in the insurance benefit vests. Therefore, when an accountable institution makes a payout of a life insurance policy's proceeds, they are entering into a single transaction with the receiver of the funds. At this stage, the beneficiary becomes the client of the accountable institution and the resulting CDD obligations come into effect.
The accountable institution's clients would, therefore, be both the life insurance policyholder(s), and the beneficiary where an insured event has occurred and the benefits are claimed or become payable in terms of the policy.
Obligations in respect of providing information on suspicious and unusual transactions
The PPC clarifies that during inspections, accountable institutions are obliged to provide information relating to submitted suspicious and unusual transaction reports to their supervisory body upon request, in terms of section 45B of the FIC Act.
Follow the link below to the full PCC: