Letter to Stakeholders - Consolidation of Comments on Long-Term Insurance Business (2016-08-17)

Summary

This is a letter from the Bermuda Monetary Authority to stakeholders summarising and responding to comments received during the consultation on the Sector-Specific Guidance Notes for AML/ATF Regulated Financial Institutions carrying on Long-Term Insurance Business (the Long-Term Insurance GN), which was issued for consultation on 27 April 2016. It does not introduce new rules itself but clarifies how the AML/ATF Guidance Notes and the sectoral guidance apply to long-term insurers and insurance managers, and records amendments the BMA will make to the guidance text.

• Run-off insurers: Insurers in run-off are still expected to comply with the AML/ATF GN and sectoral guidance using a risk-based approach; no blanket exemption is given, though the BMA will consider run-off status in assessing compliance.
• Internal audit: BMA maintains that an independent internal audit of AML/ATF policies, procedures and controls should be conducted annually (rejecting a suggested two-year cycle).
• Compliance Officer: The guidance will be amended so the Compliance Officer must be appointed at managerial level and report to senior management, rather than strictly at senior management level.
• PEP classification: A domestic PEP of an overseas operation is to be treated as a foreign PEP for purposes of any relationship with a Bermuda RFI.
• Suspicious activity reporting: Bermuda RFIs must file suspicious activity reports with Bermuda's Financial Intelligence Agency (FIA); overseas operations and branches must file with the local FIA in their own jurisdiction.
• Third-party and intermediary screening: RFIs must ensure persons and entities they deal with are fit and proper, including checking that third parties, intermediaries and their staff have appropriate screening and AML/ATF training, applying Bermuda-equivalent standards where the other jurisdiction's standards are not equivalent.
• Source of wealth: Where enhanced due diligence is required, the RFI must understand the true source of wealth flowing through the insurance product; the guidance notes will be amended accordingly (para II.60) and a reference to 'source of wealth' removed from para II.62.
• Reliance on intermediaries: RFIs may rely on identification and verification documents from intermediaries regulated for AML/ATF in equivalent jurisdictions, but must not assume sanctions screening has occurred and must re-verify if there is doubt about document veracity.
• Simplified due diligence: Simplified due diligence may be applied to entities regulated in Bermuda or an equivalent jurisdiction, but equivalence does not automatically qualify an entity for simplified due diligence; RFIs must confirm equivalent outcomes are achieved.
• Training of intermediaries: Where an intermediary or third party acts as agent or outsourced arrangement of the RFI, it must be trained on the RFI's own AML/ATF policies; where acting as a pure third party, the RFI must confirm equivalent standards and staff training.

The letter indicates the BMA will amend specific paragraphs of the Long-Term Insurance Guidance Notes (including II.60, II.62 and II.134) to reflect these clarifications, but does not itself set a new deadline for compliance or filing.

Key obligations

• RFIs (long-term insurers and insurance managers) must apply a risk-based approach to AML/ATF compliance even while in run-off
• RFIs must conduct an independent internal audit of AML/ATF policies, procedures and controls at least once a year
• RFIs must appoint a Compliance Officer at managerial level who reports to senior management
• Bermuda RFIs must file suspicious activity reports with the Bermuda FIA, and ensure overseas operations/branches file with the local FIA in their jurisdiction
• RFIs must screen third-party service providers, reinsurers, agents, brokers, introducers, managers and intermediaries, or verify that these parties have adequate screening processes in place, applying Bermuda-equivalent standards where necessary
• Where enhanced due diligence applies, RFIs must identify and understand the true source of wealth flowing through the insurance product
• RFIs relying on intermediaries for CDD must not assume sanctions screening occurred and must re-verify documentation where there is doubt about its veracity or adequacy
• RFIs must ensure intermediaries and third parties are appropriately trained on AML/ATF obligations, either the RFI's own policies (if acting as agent) or to an equivalent standard (if acting as an independent third party)

Applies to

AML/ATF Regulated Financial Institutions carrying out Long-Term Insurance Business, insurance managers, insurers (including those in run-off)