SAIA clears the air on the Accountable Institution conundrum
The South African Insurance Association (SAIA) has provided clarity regarding the current position of non-life (short-term) insurers where the proposal by the Financial Intelligence Centre (FIC) to include non-life insurers as Accountable Institutions in terms of the FIC Act is concerned. SAIA advised that non-life insurers are currently exempted as Accountable Institutions pending the findings of an assessment of money laundering and terrorist financing risk in the non-life insurance industry (the Risk Assessment).
Accountable and Reporting Institutions
Accountable Institutions are persons listed in Schedule 1 of the FIC Act. These include, amongst others, persons that lend money against the security of securities, (life) long-term insurers and financial services providers (FSPs), provided such FSPs provide advice and intermediary services in respect of the investment of any financial product.
Reporting Institutions are listed under Schedule 3 of the FIC Act. Non-life insurers are also currently not included in Schedule 3, however, non-life insurers are not absolved from reporting to the FIC on suspicious and unusual transactions.
The Working Group and the Risk Assessment findings
Led by SAIA, a Non-Life Insurance Working Group was established to assist in informing the FIC’s proposal to include non-life insurers as Accountable Institutions. The Working Group comprises of SAIA, the Financial Intermediaries Association (FIA), the Insurance Crime Bureau (ICB), and the South African Underwriting Managers Association (SAUMA). Collectively, the Working Group has appointed a service provider to conduct the Risk Assessment. The Risk Assessment, which commenced in 2018 is currently in progress and its findings will provide the FIC with insight into money laundering and terrorist financing risks in the non-life insurance industry and will inform the FIC’s final position on the inclusion of non-life insurers as Accountable Institutions - either wholly, in part or not at all.
FAnews spoke to Viviene Pearson, CEO of SAIA
“We believe that the entry point for the risk of money laundering and/or terrorist financing would more likely be at the point of attaining an asset that may then be insured, for example - banks finance houses, motor dealers, etc. It seems more likely that the purchase of an asset could be a possible mechanism to launder money than the insuring of the asset” she explained.
Pearson added that the non-life insurance industry believes that it is highly unlikely that non-life insurance products are in general mechanisms of money laundering and terrorist financing.
She did however emphasise that the Risk Assessment will also ascertain whether there are classes of insurance business that potentially pose money laundering and terrorist financing risk. Where this is found to be the case, segments of the non-life insurance industry which pose money laundering and terrorist financing risks being scoped into Schedule 1 of the FIC Act could be the most proportionate and risk-based solution.
Possible outcomes
“Being an Accountable Institution comes with enormous responsibility, which carry certain cost implications. For example, many of our members would have to invest a lot of money to change their systems in order to accommodate additional requirements which follow designation as an Accountable Institution,” said Pearson.
Pearson emphasized that SAIA supports the fight against money laundering and terrorist financing. “If there are risks, we will implement the necessary systems and structures to address the risks. The Risk Assessment is not geared towards avoiding responsibility. If its findings support that we must be included (as Accountable Institutions, whether wholly or in part), we will take on the responsibility. We are committed to contributing to the fight against financial crime. We will do so if there are risks identified” she explained.
The need for financial crime laws
Money laundering and terrorist financing has been a constant topic on the G20 agenda. South Africa, as a member of the G20 and as a participant in the broader economy recognises that financial crime is a global phenomenon that requires a collaborative commitment. Countries like South Africa are discharged with certain responsibilities which require their financial crime laws to be effective and responsive and to contribute to global efforts to combat financial crime. Further, South Africa, is also periodically monitored by organisations such as the World Bank and the International Monetary Fund to ascertain the strength of its financial system, including the strength of its financial crime combatting laws.
Business as usual, for now
The FIC confirmed that the non-life insurance industry would be exempted as Accountable Institutions pending the outcome of the Risk Assessment.
According to Section 29 of the FICA (of 2001), all persons and businesses in South Africa are required to report suspicious business practices to the FIC “within the prescribed period after the knowledge was acquired or the suspicion arose, report to the Centre the grounds for the knowledge or suspicion and the prescribed particulars concerning the transaction or series of transactions.”
In the meantime, SAIA has agreed to provide the FIC with information where there may be suspicions of illegal activity.
Writer’s thoughts:
The non-life insurance industry states that they are committed to fighting financial crime and have always been open to contributing to this important imperative where applicable. Their cooperation and enthusiasm should be well received in this country where the private and public sectors are encouraged by the local and international community to band together to combat criminal activities. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts mashoto@fanews.co.za.
