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Accountable institutions… areas where risk exists

11 April 2019 Myra Knoesen
Nico Esterhuizen, General Manager of Insurance Risks at SAIA

Nico Esterhuizen, General Manager of Insurance Risks at SAIA

Following the Financial Intelligence Centre’s (FIC) proposal to include non-life insurers and intermediaries as Accountable Institutions, both the FIC and the Prudential Authority (PA) agreed that together with the South African Insurance Association (SAIA), the Financial Intermediaries Association of Southern Africa (FIA) and the South African Underwriting Managers Association (SAUMA) they would follow an agreed process to assess the risks in terms of money laundering and terrorism financing activities related to the short term insurance business.

FAnews spoke to Nico Esterhuizen, General Manager of Insurance Risks at SAIA, about what SAIA, the FIC and SAUMA are doing in terms of money laundering and terrorism financing, how it all started and where the process is, currently.

Two kinds of institutions

“The FIC is the regulator for financial intelligence in South Africa, and through the FIC Act, institutions are required to submit information to the FIC when they suspect money laundering or terrorist and financing risk,” said Esterhuizen. 

“There are two kinds of institutions. The first one is accountable institutions. These are usually banks and life insurers and they have to proactively vet clients as required by the FIC Act (FICA). The second one is reportable institutions which include non-life insurers, intermediaries and non-life UMAs which have a requirement to report to the FIC on the suspicion of money laundering and terrorist financing risk. They are however, not considered accountable institutions as they do not have to conduct the Know Your Clients (KYC) processes etc,” continued Esterhuizen.

“The compliance cost associated with being an accountable institution is considerably high and runs into millions of Rands per annum for insurers and banks,” he added.

SAIA proactively engages industry

“In 2017, the FIC issued a proposal to the industry where they said they believed that non-life insurers need to be included as accountable institutions. This led to the realization that there is significant financial risk to the industry, compared to a small risk of money laundering and terrorist financing in the non-life industry,” said Esterhuizen.

“With the FIC, SAIA engaged proactively with the FIA, SAUMA and ICB (Insurance Crime Bureau) and proposed to them that instead of having a big bang approach, whereby every institution and person that operates within the non-life industry is included as accountable institutions, that a risk-based approach is followed rather,” he said.

“This recommendation was well received, and SAIA and the FIC decided to create a joint committee on a voluntary basis, where we would discuss this concept, as well as introducing a new process whereby insurers, brokers and UMAs would submit information to the FIC on a request basis,” added Esterhuizen.

“SAIA also went through a tender process with the other institutions (the FIA and SAUMA), where we requested proposals from subject experts to conduct a complete industry wide money laundering and terrorist financing risk assessment. Through this process we recommended to the SAIA board to appoint Deloitte, and now Deloitte will commence with the risk assessment,” he said.

“The intension of the risk assessment is to provide the FIC with insight into where there is possible money laundering and terrorist financing risk in the non-life industry, including outsourced arrangements and third parties” continued Esterhuizen.

A better approach

“We believe the risk assessment is a better approach and if it would highlight any risk and concerns in money laundering and terrorism financing, with the idea that the FIC would only include those specific identified areas or structures as accountable institutions,” said Esterhuizen.

“We are confident that this is the right process to follow… risk based and only focused on the areas and structures where this risk actually exists. We want to not only ensure that the non-life insurance industry does not incur significant, unnecessary, compliance costs as possible accountable institutions, but we also want to play a responsible role as corporate citizens of South Africa to provide the needed information to the FIC,” he added.

“We hope this process will be concluded by the end of 2019 and that in 2020, the FIC will be able to finalize their views on the inclusion of non-life insurers as accountable institutions,” he concluded.

Editor’s Thoughts:
Confident that this is the right process to follow… risk based and only focused on the areas and structures where this risk actually exists, do you believe the risk assessment is a better approach? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.

Comments

Added by Alan, 12 Apr 2019
Your article states: "The second one is reportable institutions which include non-life insurers, intermediaries and non-life UMAs which have a requirement to report to the FIC on the suspicion of money laundering and terrorist financing risk."
This is not correct.
Reporting institutions are limited to persons who carries on the business of dealing in motor vehicles and persons who carries on the business of dealing in Kruger rands. Non-life (short term) insurers, UMA's and brokers are NOT Reporting Institutions.See Schedule 3 to the FIC Act, 2001.
All businesses in South Africa, not only Accountable institutions and Reporting Institutions, are required to report suspicious transactions to the FIC. In this regard I would refer you to S 29 of the FIC Act, 2001 and Guidance Note 04B of 29 March 2019
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Added by Paul Chinchen, 11 Apr 2019
Yes, I am confident that a risk based approach is the correct course of action.
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Added by John Bezuidenhout, 11 Apr 2019
Money is wasted as we speak. How can Deloit be a better and more experienced collector of data , than the centuries of experience and day to day , practical , on the ball feedback members of an Intermediary association can give , in a much shorter time frame.
This is the type of decision making that astound me and worsening an already " sick " sector .
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