PA proposes additional due diligence for life insurance beneficiaries

Life insurers will have to incorporate beneficiaries as a risk factor when determining a client’s overall money laundering and terrorist financing (ML/TF) risk, according to a proposed directive published for comment by the Prudential Authority (PA).

The PA, the supervisory body for life insurers in terms of the Financial Intelligence Centre Act (Fica), published the directive on 23 August. Life insurers and other interested parties were given until 8 September (Thursday) to submit comments.

The directive proposes that life insurers must adopt the following measures:

• In addition to the existing customer due diligence (CDD) measures required by Fica, a life insurer must obtain the particulars of a beneficiary as soon as the beneficiary is identified, designated or amended by a client.
• Where a beneficiary is a named natural person, legal person or legal arrangement, an ML/TF risk assessment and corresponding CDD measures must be conducted, in accordance with Fica, when the claim is paid out and before the funds are transferred to the beneficiary.
• Where the beneficiary is designated by characteristics, by class or by other means, CDD measures should be conducted by obtaining sufficient information about the beneficiary to satisfy the life insurer that it will be able to establish and verify the identity of the beneficiary, in accordance with Fica, when the claim is paid out and before the funds are transferred to the beneficiary.
• Beneficiaries of life insurance policies must be included as a factor in life insurers’ overall risk assessment of their clients and, consequently, in determining whether amplified CDD measures would apply to their clients.
• If it is determined that a beneficiary who is a legal person or a legal arrangement presents a higher ML/TF risk, the life insurer must undertake enhanced CDD measures on the beneficiary when the claim is paid out and before the funds are transferred to the beneficiary.
• A life insurer must take reasonable measures to determine whether the beneficiary and/or, where required, the beneficial owner of the beneficiary is a domestic prominent influential person or foreign public prominent official. Where such higher risks are identified, life insurers should inform their senior management before the inception of the policy, to conduct enhanced scrutiny on the business relationship with the client and to consider making a suspicious transaction report to the Financial Intelligence Centre.
• The life insurer must take reasonable measures to determine whether the beneficiary and/or, where required, the beneficial owner of the beneficiary is not a listed person pursuant to targeted financial sanctions as envisaged in sections 28A and 26B of Fica.

Once finalised, the directive will become effective from the date of publication on the South African Reserve Bank’s website.

Comments should be sent to PA-Insurancedirective@resbank.co.za

Click here to download the proposed directive.