Workshop on Financial Sector Assessment Programme (FSAP)

1. Workshop on Financial Sector Assessment Programme(FSAP) At Hyderabad December 29, 2010 Kunnel Prem

2. Insurance Core Principles (ICPs) ICP 27 on Insurance Frauds and ICP 28 on AML/CFT

3. ICP 27 - Fraud The supervisory authority requires that insurers and intermediaries take the necessary measures to prevent, detect and remedy insurance fraud.

4. ICP -27 Essential Criteria • Supervisor to be equipped with powers of enforcement to detect, deter, record, report and remedy frauds • Existence of legislation to address frauds • Claims fraud is a punishable offence Contd…

5. Supervisor requires insurers/ intermediaries to ensure high standards of integrity and effective procedures to control frauds Supervisor requires that insurers/ intermediaries allocate appropriate resources and effectively implement procedures and controls to deter, detect, record, and report fraud to the appropriate authorities ICP -27 Essential Criteria Contd…

6. ICP -27 Essential Criteria • Supervisor ensures that effective measures to prevent frauds are taken by insurers including training to staff, sharing of information etc • Supervisor cooperates with counterparts including those in other jurisdictions in countering fraud

7. ICP -27 Compliance • Section 14 of IRDA Act,1999 & Sections 33,34,114A of the Insurance Act,1938 vest the authority with powers to establish and enforce regulations • Section 42 empowers the Authority to cancel the licence of an agent on grounds of fraud Contd…

8. ICP -27 Compliance • Section 44 of the Act prohibits payment of renewal commission to agents who are found guilty of frauds. • Section 45 allows the insurer to reject a claim on grounds of fraud with proper evidence Contd…

9. ICP -27 Compliance • IRDA has come out with a circular on 8th December 2010 that lays out the framework with regard to sharing of information • IRDA is working on specific guidelines to be issued with regard to frauds Contd…

10. ICP -27 Compliance • Insurance companies may however examine this aspect from the perspective of having appropriate resources and effective procedures to combat frauds • Creation of a data base on frauds with cause/source, financial/non financial to be initiated

11. ICP 28 Anti-Money Laundering, Combating the Financing of Terrorism (AML/CFT) The supervisory authority requires insurers and intermediaries, at a minimum those insurers and intermediaries to take effective measures to deter, detect and report money laundering and the financing of terrorism consistent with the Recommendations of the Financial Action Task Force on Money Laundering (FATF).

12. ICP -28 Essential Criteria • AML/CFT Legislation and supervisory activities should be in alignment with FATF Standards • Supervisor has adequate powers to supervise and enforce compliance with the AML/CFT requirements Contd…

13. ICP -28 Essential Criteria • Supervisor is empowered to take measures to prevent criminals from holding a beneficial ownership in a insurance company/intermediation • Supervisor has appropriate authority to co-operate with the Financial Intelligence Unit (FIU),domestic enforcement authorities and domestic/foreign supervisors for AML/CFT purposes Contd…

14. ICP -28 Essential Criteria • Supervisor has adequate financial, human and technical resources for AML/CFT monitoring • Supervisors require insurers and intermediaries to comply with AML/CFT requirements Contd…

15. ICP -28 Essential Criteria • Compliance with AML/CFT Requirements like • Performing customer due diligence • Enhanced measures for high risk profiles • Maintaining business records and CDD data • Monitoring for complex,large,unusual transactions without economic or lawful purpose • Reporting suspicious transactions to FIU • Developing internal procedures/controls to combat money laundering and terrorist financing • Ensuring that foreign offices observe AML/CFT measures consistent with home jurisdiction requirements

16. ICP -28 Compliance • Evaluation of the country on compliance to AML/CFT standards was conducted by the FATF/APG team in December 2009 • India was granted membership of the FATF in June 2010 • Action plan on the deficiencies with a specific timeframe has been submitted to the FATF Contd…

17. ICP -28 Compliance • Guidelines on AML were issued on 31st March 2006 • All insurance companies are required to have a AML program which lays out procedures, controls, internal audit functions, etc. in conformity with the legislation Contd…

18. ICP -28 Compliance • Clarifications and additional guidelines were issued subsequently based on deficiencies in implementation as well as legislation • Two Master circulars have been issued – the latest on 24th September 2010 Contd…

19. ICP -28 Compliance • Off site/On site inspections of life/non-life insurance companies have been conducted • Guidelines are applicable to insurance companies, individual agents & corp. agents Contd…

20. ICP -28 Compliance • Insurers are advised to classify risk as high/low based on customer/ product profile • Reporting of suspicious transactions to FIU has been mandated

21. ICP -28 Deficiencies in AML/CFT implementation • Acceptance of cash beyond thresholds • Controls to be strengthened to ensure that thresholds are maintained on remitter basis • Reporting to FIU within stipulated time frame Contd…

22. ICP -28 Deficiencies in AML/CFT implementation • Incorporating changes in legislation, plugging deficiencies through annual review of AML Policy • Exercising higher due diligence during assignments Contd…

23. ICP -28 Deficiencies in AML/CFT implementation • Validity and genuineness of KYC documents • Establishing source of income • System to check banned entities/individuals

24. Thank You