On 15 December 2022, the Prudential Authority (PA) issued a directive to life insurers to undertake specific customer due diligence (CDD) activities in relation to the beneficiaries of life insurance policies.
Item 8 of Schedule 1 to the Financial Intelligence Centre Act (Fica) designates a person who carries on a long-term insurance business, as defined in the Insurance Act, as an accountable institution.
The directive requires item 8 entities to obtain certain information in respect of beneficiaries and to incorporate the money laundering and terrorist financing (ML/TF) risk associated with the beneficiary into the overall assessment of the ML/TF risk posed by the policyholder.
Click here to download the directive.
In March 2020, the FIC issued Public Compliance Communication 48, which sets out life insurers’ CDD and ML/TF risk assessment obligations.
It may not be clear how the requirements in the PA’s directive are different from those in PCC 48.
Click here to download PCC 48.
Law firm Webber Wentzel said the main difference between the two documents is that the PA’s directive is authoritative, whereas PCC 48 is merely guidance.
Fica directives are issued in terms of section 43A of the Act and have potential administrative penalties in the event of non-compliance. PCCs, on the other hand, lack the legislative enforceability enjoyed by directives issued under Fica.
In terms of the content of the directive and PCC 48, Webber Wentzel said although the two are largely similar, there are some differences that should be noted.
1. Verification when nominated
The directive requires life insurers to obtain, at minimum, the beneficiary’s identification particulars when onboarding the policyholder, and the life insurer must be satisfied that it will be in a position to verify the identity of the beneficiary before paying out the policy proceeds to the beneficiary.
PCC 48 only requires accountable institutions to have “sufficient knowledge of the nominated beneficiary at any given time”. Life insurers are not expected to identify and verify beneficiaries at nomination. Unlike PCC 48, the directive thus requires life insurers to identify a beneficiary when he or she is nominated.
2. Prominent individuals
In addition, Webber Wentzel said the directive obliges life insurers to take reasonable measures to determine whether the beneficiary and/or, where required, the beneficial owner of the beneficiary is a domestic prominent influential person (DPIP) or a foreign public prominent official (FPPO).
Where higher risks are identified, including as a result of the beneficiary, life insurers should obtain approval from their senior management before the inception of the policy or during the course of the policy, as the case may be, to conduct enhanced scrutiny of the business relationship with the policyholder, and to consider making a suspicious transaction report to the FIC.
The requirement to obtain approval from senior management in instances where the policyholder has been classified as a high risk as a result of the nominated beneficiary goes beyond what is covered in PCC 48. Webber Wentzel said that, on its reading, PCC 48 does not extend the enquiry on DPIPs and FPPOs to the beneficiary at the inception of the policy.
3. Up-to-date information
The directive requires that life insurers ensure that information held in respect of beneficiaries is up to date and accurate, Webber Wentzel said.
In conclusion, although both documents are very similar, the directive introduces nuances to the way in which life insurers must meet their Fica obligations, the law firm said.
