compliance Terence Clark RWA COMPLIANCE SERVICES
Financial sanctions -a general insurance issue?
General business insurance brokers may have thought themselves safe from the reach of the Treasury’s sanctions list, but as Terence Clark explains, that comfort may not be entirely valid
hen general insurance brokers are comparing their ‘lot’ with their IFA colleagues, many are thankful they do not have to deal with the mountain of paperwork that goes with various aspects of the IFA advice and sales process. However, despite general business being generally seen as a lower risk activity than investment business, it can be quite easily forgotten that some areas believed to be the preserve of the IFA, do impact the general insurance arena.
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One such important ‘crossover’ is the provision of any financial service to those noted on the Treasury’s sanctions list, and who may be involved in terrorist or other illegal activities.
Although generally the money laundering rules do not apply to the general insurance broker, other aspects such as Proceeds of Crime Act 2002 and the Terrorism Act do. So, for this particular instance, general brokers must adhere to the same regime as their brothers in the IFA markets.
As background, the UK is required by the UN to freeze assets of persons who commit terrorist acts. The UK legislation was quashed by the UK Supreme Court in January 2010 but reinstated by temporary legislation immediately afterwards. The Terrorist Asset-Freezing (Temporary Provisions) Act 2010 expired on 31 December 2010. The Bill that seeks to replace that Act with a permanent legislative framework is now before Parliament. It is a criminal offence to make funds or financial services available to individuals or entities on the financial sanctions list maintained by HM Treasury. Firms need to ensure they do not provide any financial services to such persons.
As said, it can be quite easy (and somewhat understandable) to think that this is an issue which relates to IFAs and investment advice. However, the FSA have made it very clear that this applies to all firms. The FSA fact sheet can be found on -
http://www.fsa.gov.uk/smallfirms/resources/pdfs/Sanctions.pdf As said above, all firms have an obligation under the financial sanctions regime, not just banks. All firms to whom the Money Laundering Guidance (
http://www.jmlsg.org.uk/) applies - whether or not they are FSA-regulated or subject to the money laundering regulations - should consider registering with the HM Treasury update service. Once a firm has subscribed, it will receive updates of individuals and entities added to the sanctions list, which can then be checked against a firm’s customer list. To subscribe to the HM Treasury service, visit:-
http://www.hm-treasury.gov.uk/fin_sanctions_subscribe.htm H M Treasury maintain a list of all entities to whom financial sanctions apply and includes all individuals and entities that are subject to financial sanctions in the UK. See:-
http://www.hm-treasury.gov.uk/fin_sanctions_index.htm
22 insurancepeople MARCH 2011
Use of the sanctions list To reduce the risk of breaching its obligations under the regime, a firm
should:-
● Be aware of businesses or transactions that carry a greater likelihood of involvement with individuals on the list - e.g. overseas parties
● Check new clients against the list
● Regularly check client data with the Treasury List to ensure that clients are not subject to a sanction
If a firm identifies a match of a client against the sanctions list - which then gives rise to a suspicion of money laundering or terrorist financing - it must make a report to HM Treasury or SOCA. The identification and suspicion should be advised to the firm’s Nominated Person who will then be responsible for making the report.
There are alternatives to the official websites that allow firms to conduct searches of the sanctions list. If used, a copy of the search results must be retained on the client file as evidence that the search was carried out.
Suspicions and reporting A comprehensive record of suspicions and disclosures is recommended because disclosure of a suspicious activity is a defence to criminal proceedings. Records must be kept for five years from the creation of the record and may include notes of:-
● ongoing monitoring undertaken and concerns raised by staff ● discussions with the Nominated Person regarding concerns ● advice sought and received regarding concerns
● why the concerns did not amount to a suspicion and a disclosure was not made
● copies of any disclosures made (i.e. to SOCA)
● conversations with SOCA, law enforcement, insurers, supervisory authorities etc regarding disclosures made
● any decision not to make a report to SOCA (i.e. Information not acted upon) which may be important for the Nominated Person to justify his position to law enforcement
Records should not be inappropriately disclosed to the client or third parties to avoid offences of tipping off and prejudicing an investigation. Staff should receive regular training on their responsibilities, and this should be documented in annual SYSC reports and as part of corporate governance procedures.
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