AML and KYC Guidelines

SAP for the Month of November -2018

Do you remember this day?

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 What was it ?

 Terrorism

 Nations / Organizations Financing Terrorism

 Money Laundering

 Financial Institutions facilitating laundering

 Failure to Know Your Customer

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 Agenda

 Money Laundering

Process of Money Laundering

AML regime

Consequences of Money Laundering

 Know Your Customer - Risk Identification & Assessment

 Policy stages prone to Money Laundering / KYC risks

 AML/KYC requirements
 Money Laundering
“Money laundering is a sophisticated crime and we must be equally sophisticated.”
Janet Reno, Attorney General of the United States (1993 to 2001)

Definition:

“Money laundering is the process of moving illegally acquired cash through

financial systems so that it appears to be legally acquired”.

Objective of Anti-Money Laundering & KYC guidelines:

To guide & prevent Insurers from being used, intentionally or

unintentionally, by criminal elements for Money Laundering activities.

It also helps to assess and manage risks related to Insurers prudently

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 Stages / Process of Money Laundering
Stage 1 - Placement

Process by which bulk cash is disposed into the banking system by:
- small but regular deposits or investments
- bulk-shipping cash to an offshore location
- wiring the cash to another location to launder funds

Stage 2 - Layering

Process of complicating audit trail, effectively "laundering“ the dirty funds and give a bona-fide status:
- Large volume of transactions or transfers between accounts in different jurisdictions.
- Use of a range of instruments and currencies.

Stage 3 - Integration

Process which involves the use of layered funds to purchase:

- "clean, legitimate" assets such as investment products, fixed assets, etc.

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 AML Regime
 Financial Action Task Force (FATF) recommends Anti Money Laundering (AML) programs

 FIU-IND was set by Government of India- 18 November 2004

 The Prevention of Money Laundering Act (PMLA) & Rules – 1st July 2005

 IRDAI made AML guidelines mandatory - 1st August 2006.

 Master Circular on Anti-Money Laundering / Counter-Financing of Terrorism – IRDAI-

28th Sept 2015

 IRDAI along with FIU IND & Life Insurance Council ensures AML/CFT implementation

 SBI Life is guided by its own AML / CFT policy since 2010

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 AML framework in India - linkages
Prevention of Money Laundering Act,2002 (PMLA)‫‏‬
Prevention of Money Laundering Rules (2005)

RBI, IRDA/SEBI Master Circular on AML/CFT/ KYC

Obligation of Financial Institutions under PMLA, 2002

Reporting Agencies Regulatory Agencies

Banks RBI
Insurance Companies FIU-IND
IRDAI

AMCs SEBI

NBFCs

Other FIs
Enforcement Agencies Foreign Regulators
EOW of Police

ED

EOW of CBI

ACB

CBDT - ITAX

Other LEAs 8
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 Risks of Money Laundering/ non compliance of KYC

a) Reputation Risk
Loss due to severe impact in Insurer’s reputation

b) Compliance Risk
Loss due to failure of compliance with key regulators governing operations.

c) Operational Risk
Loss resulting from inadequate or failed internal processes, people & systems

d) Legal Risk
Loss due to legal action Insurer may face due to non compliance

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AML Online Incident Reporting Module

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AML / CFT implementation at SBI Life

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 AML matrix at SBIL

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 Consequences of Money Laundering

• The Prevention of Money Laundering Act, 2002 provides:

“Whosoever directly or indirectly attempts to indulge or knowingly assists or
knowingly is a party or is actually involved in the process or activity connected
with the proceeds of crime and projecting it as untainted property shall be
guilty of money laundering”

• Under the Act, offences will be punished with rigorous imprisonment from
three to seven years and a fine upto Rs. 5 lacs.

Prevention of money laundering protects the interests of not only the

company but also consultants, intermediaries, partners & employees

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 How to prevent Money Laundering?

 Know Your Customer (KYC)

 What is KYC ?

Identifying the customer and verifying the identity by using reliable

and independent documents or information

 Objective of KYC?

- prevent identity theft, fraud, money laundering & terrorist financing

- to know, understand customers better and manage risks prudently

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 Know Your Customer (KYC) contd..

 KYC requirements, mandatory to collect:

a) Identity proof

b) Residence proof

 Document of identity (like Passport, Driving License, Aadhar etc.) which

also contains the address, are sufficient for both Identity and Residence
proof.

 It is mandatory to obtain recent photograph, identity proof and

residence proof for policies (premium above Rs 10,000/-)

 It is mandatory to obtain Sources of Funds & Income proofs for policies

(premium of Rs. 2 Lacs and above)

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 Red Flag Indicators

There are some standard rules for generation of Alerts- Life

Insurance . There are certain threshold limit which are revised
from time to time and is kept confidential. The red flag
indicators are :
 Multiple DD payments each of denomination less than Rs.50,000
 Single Policy Free Look Cancellation
 Multiple Free Look Cancellation
 Request for Purchase of policy in amount considered beyond one’s
apparent needs
 Policy from place where the customer does not reside or is
employed
 Frequent Request for change in address
 Overpayment of premiums with a request for refund of the amount
overpaid

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 Red Flag Indicators Contd….

 Assignments Done to Unrelated Parties

 Unusual Termination of policies and refunds
 Borrowing maximum amount against single premium policies soon
after buying it
 Multiple assignments made by customers to one common assignee
 Credit card transactions
 Enquiry by Law enforcement authority
 Adverse media reports
 Fraudulent claims
 Customer insisting on anonymity

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 AML Checks and Alert Indicators at the various stages of the Proposal-Policy
Proposal Stage Checks Alert Indicators

Application Stage Tier I/II branches, Online  Non submission of AML/KYC

- Proposal Login on M -Connect documents
- Proposal cashiering in branches  Fictitious names and / or forged
- On-line purchase AML / KYC documents
- Forwarding to respective offices  Using third party cheques for
purchase of insurance

Underwriting Stage RUU/RO/CPC  Premium not justified by the

- Scanning of the Proposal and income proof
upload  Unwillingness to share account
- Verification of all AML/KYC details or source of premium
documents  Cancellation / Withdrawal of policy
- SUC check – customer ID merger at application stage.
and risk assessment  Application for policy from an AML
- Underwriting deficient country

Policy Servicing Stage RPC/ CPC  Frequent Free Look Cancellations

- Free Look Cancellation and / or Policy surrenders
- Address / other profile details  Policy assignment to unrelated
change party without valid consideration
- Assignment & Nomination  Frequent address change requests
changes  Partial withdrawal and fund
- Partial withdrawals & Surrenders transfer to another policy

Claim Stage (Maturity / Death) CPC  KYC verification of the beneficiary

- Maturity or Death Claims  Fraudulent claims .

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 AML/KYC requirements

“No‫‏‬third‫‏‬party‫‏‬instruments‫‏‬should‫‏‬be‫‏‬accepted”
Except for the following categories:

• 1.‫‏‬Proposer’s‫‏‬own‫‏‬instruments.
• 2. Instrument prepared for spouse.
• 3. Instrument given by parents on behalf of the children.
• 4. Instrument given by grandfather (as gift) on behalf of the grandchild (life
assured) with father being the proposer.
• 5. Instrument given by adopted parent for adopted child.
• 6.Under employer–employee scheme instrument given by employer on behalf of
employees.
• 7. Instrument given by sole proprietor of proprietorship firm.
• 8.Instrument given through HUF account for the family members of the HUF for
HUF proposals only.
• 9. For key man policies instruments given by company for policy on the life of key
man

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Thank You

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